Having the right mix of stocks, bonds, cash, and commodities in your portfolio, and being well diversified within each asset class, can have a profound impact of your returns. ETFs can be an easy way to gain this diversification. They can be cheap, flexible, and tax-efficient and may help you gain access to sectors and asset classes that would otherwise be closed off to individual investors.
The first step in building an ETF portfolio is to figure out the right asset allocation. You will consider your theoretical exposure to cash, bonds, large-cap stocks, medium/small-cap stocks, and foreign stocks. In general, investors with a long time horizon should consider a more aggressive approach weighted heavily toward equities, while people within a few years of needing their money should stick to more conservative investments.
After making your decisions and with help of asset allocator tools provided by many financial website, you can know the chance that you will be able to meet your financial goals given how much money you already have invested and how much additional money you intend to invest monthly. Read more "Constructing Portfolio Using ETFs"
To capture the benefits of diversification and asset allocation, you will want to build a portfolio of several asset classes that are somewhat uncorrelated. You have a few options for building such a portfolio.
Asset allocation is an investment portfolio technique that aims to balance risk and reward by distributing a portfolio's assets among major categories of asset classes according to an individual's goals, risk tolerance and investment horizon.
Each asset class has different levels of risk and return, so each will behave differently over time. While one asset is increasing in value, another may be decreasing or not increasing as much.
Most financial professionals agree that asset allocation is one of the most important decisions in constructing investment portfolio. It is the principal determinants of your investment results. In other words, selection of individual securities is secondary to the allocation of investment portfolio among asset classes. Read more "Asset Allocation"