How to Build a Two-ETF Portfolio in Australia (VAS + VGS or VAS + BGBL) (2026)
A two-ETF portfolio (Australian shares + global shares) is the most popular approach for experienced Australian ETF investors. Here's the allocation, the rebalancing strategy, and why this beats most complex portfolios.
The two-ETF portfolio — one Australian shares ETF and one international shares ETF — is the most common approach for Australian ETF investors who want control over their allocation at the lowest possible cost. It achieves near-total global diversification at a blended MER of 0.07–0.13%, beating the all-in-one options on fees while requiring only minimal management.
The Two Most Popular Combinations
Option 1: VAS + VGS
- VAS: Vanguard Australian Shares (ASX 300) — 0.07% MER
- VGS: Vanguard MSCI International (22 developed markets ex-AU) — 0.18% MER
- Blended MER at 30/70 split: 0.07% × 0.30 + 0.18% × 0.70 = 0.147%
Option 2: A200 + BGBL (cheapest combination)
- A200: BetaShares Australia 200 — 0.07% MER
- BGBL: BetaShares Global Shares — 0.08% MER
- Blended MER at 30/70 split: 0.07% × 0.30 + 0.08% × 0.70 = 0.077%
Comparison to one-ETF alternatives:
- DHHF: 0.19% MER
- VDHG: 0.27% MER
- A200 + BGBL: 0.077% MER
The fee saving of the two-ETF approach over DHHF/VDHG ranges from 0.11–0.19% per year. On $500,000 invested, that is $550–$950 per year in lower fees — compounding to a meaningful sum over 20–30 years.
What Allocation to Use: The 30/70 Question
The most common allocation for Australian two-ETF portfolios is approximately 30% Australian / 70% international — mirroring Australia's approximate share of global market capitalisation (currently around 2–3%, but investors typically hold more domestic exposure for franking credit reasons and home bias management).
Why 30% Australian:
- Australia represents approximately 2% of global market cap by strict weighting
- But Australian shares generate significant franking credits (valuable at lower marginal rates and in retirement)
- Australian dollar-denominated income from Australian shares provides natural currency hedging on the income side
- 30% is the most common "home bias" allocation for Australian institutional investors
Why not 50% Australian:
- Australia's share market is heavily concentrated in banks (~31%) and mining (~22%)
- High concentration in two cyclical sectors is genuine concentration risk
- International diversification dramatically reduces sector and country concentration
Variations:
- Conservative income focus: 40% Australian / 60% international (more franking credits)
- Global growth focus: 20% Australian / 80% international (more international growth exposure)
- Standard balanced: 30% Australian / 70% international
Rebalancing: Simple and Low-Tax
The two-ETF portfolio requires periodic rebalancing to maintain the target allocation. The simplest approach:
Contribution-based rebalancing (preferred): When making new contributions, invest in whichever ETF is currently underweight relative to target. If your Australian allocation has drifted from 30% to 27%, direct the next few contributions entirely to VAS until it returns to 30%. No selling required — no CGT triggered.
Annual check: Review allocation once per year (e.g. every July 1 when reviewing your financial year). Adjust next contribution direction if needed. This is sufficient for most investors.
If allocation drifts significantly (>5–10% from target): Consider partial rebalancing by selling the overweight component. Note this triggers a CGT event — only worth doing if the drift is material enough to warrant the tax cost.
Adding Emerging Markets: 2.5 ETF Portfolio
Some investors add a small allocation to emerging markets — China, India, Brazil, Korea, Taiwan — not covered by VGS or BGBL (which are developed markets only).
VGE (Vanguard Emerging Markets): 0.48% MER, adds ~4,500 emerging market companies.
Common three-ETF allocation:
- 30% VAS (Australian shares)
- 60% BGBL (developed markets)
- 10% VGE (emerging markets)
This covers approximately 90%+ of global market capitalisation at a blended MER of ~0.17%.
The case for including emerging markets: India, Indonesia, and other emerging economies may produce higher growth over the next 20 years than developed markets. The case against: higher fees (0.48%), more volatility, complex political and currency risks. Omitting emerging markets from a two-ETF portfolio is a defensible choice — they represent only 12–15% of global market cap and BGBL/VGS's performance has historically been similar with or without them.
Frequently Asked Questions
What is the best two-ETF portfolio for Australians?
The cheapest combination is A200 (Australian shares, 0.07%) + BGBL (global developed markets, 0.08%) at a blended MER of approximately 0.077% — significantly cheaper than one-ETF alternatives. VAS + VGS is also excellent at a blended MER of ~0.147%. The allocation most commonly used is 30% Australian / 70% international.
How do I rebalance a two-ETF portfolio?
The simplest approach is contribution-based rebalancing — directing new contributions toward whichever ETF is underweight. This avoids selling (and the CGT event that selling triggers). An annual check of your allocation is sufficient for most investors.
Is a two-ETF portfolio better than DHHF?
On fees: yes — a two-ETF portfolio (especially A200 + BGBL at 0.077%) is cheaper than DHHF (0.19%). On simplicity: DHHF wins — one purchase, automatic rebalancing, one annual tax statement. On tax efficiency: DHHF is slightly better than VDHG's fund-of-funds structure. The choice comes down to whether the 0.11–0.19% annual fee saving justifies the additional complexity.
General information only. Not financial advice.
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Written by
Mahi PatilSoftware engineer & personal finance enthusiast · Melbourne, Australia
Built Dolaro.com.au to create accurate, free Australian finance tools. Invests in Australian and global ETFs and writes about the topics researched firsthand. More about Mahi →