Real-world examples of diversification with ETFs for modern investors

Simple starter examples of diversification with ETFs

Most people don’t begin with 15 different funds. They start with a couple of building blocks. Some of the best examples of diversification with ETFs are also the simplest, because they’re easy to understand and maintain.

Picture a new investor in 2025 using two broad ETFs:

• A total U.S. stock market ETF that owns large, mid, and small‑cap companies across sectors.
• A total U.S. bond market ETF that owns Treasuries, mortgage‑backed securities, and investment‑grade corporate bonds.

Even this two‑fund mix gives diversification across thousands of securities and two major asset classes. When stocks fall sharply, high‑quality bonds often hold up better or even rise, providing a cushion. Historically, long‑term data from sources like the Federal Reserve and academic research shows that stocks and high‑quality bonds are imperfectly correlated, which is the backbone of ETF diversification.

For someone in their 20s or 30s, that mix might be 80% stock ETF and 20% bond ETF. For a retiree, it might flip closer to 40% stocks and 60% bonds. The structure is the same; the risk level changes.

Global ETF portfolio: examples include U.S., international, and bonds

A more developed example of diversification with ETFs adds international exposure. Instead of only U.S. stocks and bonds, consider an investor who splits their equity allocation between U.S. and non‑U.S. markets.

One realistic example of ETF diversification in 2024–2025:

• U.S. total stock market ETF
• International developed markets ETF (Europe, Japan, Australia, etc.)
• Emerging markets ETF (Brazil, India, Indonesia, etc.)
• U.S. total bond market ETF

Now you’re diversified:

• Across regions (U.S. vs. Europe vs. Asia vs. emerging markets)
• Across currencies
• Across economic cycles

In some years, U.S. stocks dominate. In other years (think 2000–2009), international markets outperform. By holding all of them through ETFs, you’re not betting your future on a single country. This is one of the best examples of using ETFs to avoid “home country bias,” where investors overweight their own market.

Research from institutions like the Federal Reserve Bank of St. Louis and academic studies hosted on sites such as Harvard University often highlight the benefits of global diversification over long periods. While the U.S. has been a standout performer in the 2010s and early 2020s, there is no guarantee it will always lead.

Classic 60/40 ETF portfolio: a timeless example of diversification

The 60/40 portfolio—60% stocks, 40% bonds—is a textbook example of diversification with ETFs. It’s not trendy, but it’s survived countless fads and market cycles.

A practical 60/40 ETF mix might look like this:

• 40% U.S. total stock market ETF
• 20% international stock ETF
• 30% U.S. aggregate bond ETF
• 10% Treasury Inflation‑Protected Securities (TIPS) ETF

Here’s why this is a strong example of ETF diversification:

• Stocks provide long‑term growth potential.
• Bonds help reduce volatility and provide income.
• TIPS add a layer of inflation protection, which matters when inflation spikes, as it did in 2021–2022.

In 2022, both stocks and bonds had a rare down year together, which led some investors to question the 60/40 idea. But looking across decades, data from sources like the Federal Reserve and academic analyses shows that a diversified stock‑bond mix has historically reduced drawdowns compared with an all‑stock portfolio. That’s exactly the kind of real example of diversification with ETFs that matters when markets get rough.

Factor and style tilts: an example of fine‑tuning ETF diversification

Once the core is in place, some investors add “factor” or “style” ETFs to tilt their portfolios. These are still examples of diversification with ETFs, but they adjust the risk and return profile inside the stock portion.

Common factor ETFs include:

• Value ETFs (focus on cheaper, often more mature companies)
• Growth ETFs (focus on faster‑growing companies)
• Quality ETFs (profitable, stable balance sheets)
• Low‑volatility ETFs (stocks that historically move less)

For instance, an investor might hold:

• A total U.S. stock ETF as the core
• A value ETF overlay to reduce exposure to expensive growth stocks
• A low‑volatility ETF to smooth out sharp swings

These examples include diversification not just across sectors and regions, but across styles that behave differently through the economic cycle. During tech‑driven booms, growth ETFs may surge; during recoveries from bear markets, value ETFs often lead. Using ETFs to spread exposure across these styles is a more nuanced example of diversification.

Sector and thematic ETFs: targeted examples of diversification with ETFs

Sector and thematic ETFs are where many investors get into trouble, because they chase the story without thinking about concentration risk. Used carefully, though, they can still be smart examples of diversification.

Imagine an investor heavily concentrated in tech because they work in the industry and own company stock. One practical example of diversification with ETFs for them might be:

• Maintain a broad U.S. total market ETF
• Add a health care sector ETF and an industrials ETF
• Avoid adding more tech ETFs, since their job and company shares already create tech exposure

Now the ETF portfolio is doing the opposite of their human capital (career risk). If the tech sector stumbles and layoffs hit, at least their ETF holdings are less exposed to the same sector.

Another example: an investor who holds a broad stock ETF and then adds a clean energy ETF or infrastructure ETF as a small satellite position. The core remains diversified; the thematic ETF is a measured tilt, not the whole portfolio.

Real estate and inflation hedges: examples include REITs, commodities, and TIPS

Inflation came roaring back into the conversation in 2021–2022, and it hasn’t fully left. That’s pushed more investors to look for examples of diversification with ETFs that address inflation and real assets.

Common inflation‑oriented ETF building blocks include:

• REIT ETFs (real estate investment trusts)
• Commodity ETFs (broad baskets of energy, metals, agriculture)
• TIPS ETFs (Treasury Inflation‑Protected Securities)

A real‑world example of ETF diversification for a mid‑career investor in 2025 might be:

• 50% global stock ETFs (U.S., developed, emerging)
• 30% bond ETFs (U.S. aggregate bonds and TIPS)
• 10% REIT ETF
• 10% broad commodity ETF

Here, REITs and commodities can respond differently to inflation and interest rate shifts than traditional stocks and bonds. When inflation expectations rise, TIPS and some commodities often benefit. When real estate values climb, REIT ETFs can participate. These are concrete examples of how ETFs can diversify across economic environments, not just across companies.

For background on inflation and asset behavior, the Federal Reserve’s education pages at federalreserve.gov provide accessible explanations of how interest rates and inflation interact.

Income‑focused examples of ETF diversification for retirees

Retirees and near‑retirees often prioritize steady income and capital preservation. Their examples of diversification with ETFs look different from a 30‑year‑old’s.

A realistic retirement‑oriented ETF mix could include:

• Core U.S. bond ETF with intermediate‑term, investment‑grade bonds
• Short‑term Treasury ETF for stability and liquidity
• Dividend‑focused stock ETF (U.S. or global)
• REIT ETF for income and diversification

Here, diversification works on several levels:

• Different bond maturities respond differently to interest rate moves.
• Dividend stocks and REITs can provide income that may grow over time.
• Stocks still offer growth potential to offset inflation over a multi‑decade retirement.

Instead of relying on a single high‑yield ETF (and taking concentrated risk), this approach spreads income sources across bonds, dividends, and real estate. That’s a more balanced example of diversification with ETFs for someone living off their portfolio.

Tax‑aware examples of diversification with ETFs in taxable accounts

For U.S. investors, taxes are part of the diversification story. ETFs are often more tax‑efficient than mutual funds because of how they are structured, but some asset classes still fit better in certain account types.

A tax‑aware example of diversification with ETFs could look like this split:

• In a 401(k) or IRA: bond ETFs, TIPS ETFs, high‑yield bond ETFs, REIT ETFs
• In a taxable brokerage account: broad stock ETFs (U.S. and international), tax‑managed stock ETFs

This structure diversifies across asset classes while also diversifying tax treatment. Interest income and REIT distributions, which are taxed at ordinary income rates, are sheltered in tax‑advantaged accounts. Long‑term capital gains and qualified dividends from stock ETFs, which often get better tax treatment, sit in taxable accounts.

The IRS provides detailed guidance on investment income taxation at irs.gov, which can help investors understand how different ETF types are taxed.

2024–2025 trends shaping new examples of diversification with ETFs

ETF diversification isn’t static. The menu keeps expanding, and so do the real examples investors can use.

A few 2024–2025 trends:

• More ultra‑low‑cost core ETFs. Expense ratios on broad market ETFs continue to fall, making it easier to build diversified portfolios cheaply.
• Growth of ESG and climate‑focused ETFs. Some investors now include ESG or climate‑aware ETFs as part of their core, not just as niche holdings.
• Rise of option‑based ETFs. Covered‑call and buffered ETFs offer different risk/return patterns. Used sparingly, they can be another example of diversification with ETFs, though they require more understanding.
• Increased adoption of global bonds. Investors are adding international bond ETFs to diversify interest rate and currency exposure beyond the U.S.

The common thread: you can now build very specific examples of ETF diversification tailored to your risk tolerance, time horizon, and values—without needing dozens of individual stocks or bonds.

How to evaluate your own examples of diversification with ETFs

If you’re trying to decide whether your ETF mix is truly diversified, walk through a few questions:

• Are you concentrated in one country, sector, or theme?
• Do you have exposure to both stocks and bonds, or are you effectively all‑equity?
• Is your career or business risk heavily tied to the same sector your ETFs emphasize?
• Do you own any inflation‑aware assets (TIPS, commodities, or REITs)?
• Are your income sources diversified if you’re in or near retirement?

When you can point to clear, real examples of diversification with ETFs in your own portfolio—different asset classes, regions, sectors, and styles that react differently to market shocks—you’re on the right track.

For deeper background on diversification principles, the investor education materials from the U.S. Securities and Exchange Commission at investor.gov are a worthwhile reference.

FAQ: examples of diversification with ETFs

What are simple examples of diversification with ETFs for beginners?
A beginner might start with a total U.S. stock market ETF and a total U.S. bond market ETF. That two‑fund mix already provides diversification across thousands of securities and two major asset classes. Another beginner‑friendly example of ETF diversification is a global stock ETF paired with a U.S. bond ETF.

What is an example of a diversified ETF portfolio for long‑term growth?
A long‑term growth investor could hold a U.S. total stock ETF, an international stock ETF, an emerging markets ETF, and a smaller allocation to a bond ETF. That portfolio spreads risk across regions and asset classes while keeping most of the exposure in equities for growth.

What are examples of diversification with ETFs for retirees?
Retirees often use bond ETFs, short‑term Treasury ETFs, dividend stock ETFs, and REIT ETFs together. These examples include multiple income sources—interest, dividends, and real estate distributions—plus some equity exposure for long‑term growth.

Can sector ETFs still be part of good diversification?
Yes, if they sit on top of a broad core. A diversified core of total market or broad index ETFs can be complemented by small allocations to sector ETFs such as health care or industrials. The mistake is letting a single sector ETF dominate the portfolio.

How many ETFs do I need for proper diversification?
There’s no magic number. Some of the best examples of diversification with ETFs use just two or three funds, as long as they cover broad stock and bond markets. Others use six to eight ETFs to add global exposure, real estate, and inflation hedges. The key is coverage and correlation, not sheer fund count.

Are international ETFs necessary for diversification?
Not strictly, but they’re powerful tools. International and emerging markets ETFs provide exposure to different economic cycles, currencies, and policy environments. Many real examples of diversification with ETFs include at least some non‑U.S. exposure to avoid relying entirely on one country’s fortunes.