In 1774, an Amsterdam businessman named Abraham van Ketwich created a new type of investment. After raising money from a group of individuals, van Ketwich built a portfolio of bonds. He deposited the bonds in a metal box in his office then had three people secure it using three different locks.

In many ways, van Ketwich’s fund was the world’s first index fund. For starters, the bonds he purchased were broadly diversified, across industries and across geographies. Second, van Ketwich’s plan was to minimize trading, with the box remaining locked for 25 years. And finally, the management fee he charged was just 0.2%, a modest fee even by today’s standards. A war in Europe disrupted the plan a bit, but in the end, the fund was successful, and others soon followed using this same model.

The first modern index funds got their start in the U.S. in the 1970s, and initially they were very simple. But in the years since, there’s been a proliferation of funds, such that today there are more than 2,000 different index funds covering every corner of domestic and international markets. This poses a challenge for today’s investor because there’s no single, universally accepted “right” way to build a passive investment portfolio.

Consider, for example, a portfolio that’s invested entirely in an S&P 500 index fund. By most definitions, this would be considered a passive portfolio. But even this simple portfolio is active in at least two respects—because the S&P 500 includes only the largest companies in the United States, and because it excludes companies outside the U.S. entirely.

The reality, in other words, is that every investment portfolio, even if it consists solely of index funds, has an active component to it. And while it might sound like I’m splitting hairs, it highlights the reality that even those who consider themselves passive investors still need to make some active decisions.

If you’re trying to build an index fund portfolio, there are three approaches you might consider. We can look at each in turn.

The first option would be to cast as wide a net as possible. An index like the FTSE Global All Cap Index—as its name suggests—tries to cover the globe. The U.S. and Canada account for about two-thirds of this index, with the remainder allocated to developed and emerging markets outside the U.S. A popular fund that follows this index is Vanguard’s Total World Stock ETF (ticker: VT).

True indexing purists like this fund because it aims to provide global coverage, though in reality it doesn’t cover the entire globe. It excludes dozens of markets, from Argentina to Romania to Slovenia, which are in a category known as frontier markets. But aside from that, it’s as broad an index as there is.

This fund certainly offers simplicity, but are there downsides? From a domestic investor’s point of view, exchange rates pose a risk, since a third of the investments aren’t denominated in dollars. For that reason, I prefer to minimize international exposure. But others see it differently. They see exchange rates as an additional source of diversification.

Another potential downside: To the extent that the U.S. economy has a track record of producing more new, fast-growing companies than other countries, a portfolio like this might end up lagging behind one that is more U.S.-focused.

If you did want more of a domestic weighting, there’s an easy solution: You could split your portfolio along geographic lines, owning one fund that covered the U.S. market and another covering international markets. You could then vary the mix between the two. If you wanted to go this route, two funds to consider would be Vanguard’s total domestic stock market fund (ticker: VTI) and its total international fund (ticker: VXUS).

What percentages make sense? I’ve long relied on research which finds that investors can pick up most of the diversification benefit of international stocks with an allocation as small as 20%. Thus, my preferred allocation to international stocks is just 20%. It’s a matter of perspective, though, and there isn’t just one right answer.

The third major approach to portfolio construction would appeal to those looking for greater customization. On the domestic side, a popular strategy is to include greater exposure to value stocks. According to the data, these stocks have outperformed historically. But since that trend may not repeat in the future, value stocks may or may not appeal to you. Personally, I do include an overweight to value.

On the international side, there are a number of ways to customize your holdings. Investors will often choose separate developed and emerging markets funds so they can vary the mix between them.

In the portfolios I build, emerging markets are always the smallest segment, but ironically, I’ve found it to be the area where there’s the most disagreement. Some investors prefer not to hold any emerging markets stocks—owing to shaky political structures in many countries. Meanwhile, other investors prefer to have more emerging markets exposure. The logic they cite is that these countries offer more growth potential as they industrialize.

I take a different route, avoiding standard emerging markets indexes altogether. Why? The most recent Nobel prize in economics was awarded to a group of researchers who identified a link between countries’ political structures and their level of economic development. In short, countries with autocratic governments have generally not delivered the same level of economic growth as countries with more democratic regimes. Because China, which lacks representative government, is the largest weight in standard emerging markets funds, I’ve opted for a fund (ticker: FRDM) which excludes China and other dictatorial regimes and includes only emerging markets where the political institutions are more developed.

Those are three approaches you might choose in constructing an index fund portfolio. But there isn’t, as I said, just one right way. What’s most important, in my view, is to be sure the portfolio you build adheres to two key principles: low cost and low turnover.

Low fees are important because, as Vanguard founder Jack Bogle used to say, “you get what you don’t pay for.” In other words, when a fund has low expenses, those savings are passed on to the investor. That’s a key reason—and maybe the key reason—why index funds have, on average, outperformed actively-managed funds.

Low turnover refers to how much trading occurs within a fund. This is important because more frequent trading generally results in higher tax bills for a fund’s investors.​