3 Ways to Build an All-ETF Portfolio

 

3 Ways to Build an All-ETF Portfolio

Building an all-ETF portfolio is a great option for many investors. It offers the ability to construct a highly diversified, low-cost portfolio that can be quickly and easily rebalanced to meet changing market conditions.

The three main options for building an all-ETF portfolio include:

Keeping it simple

Consider using two ETFs to help provide a balanced, diversified portfolio of stocks and bonds. Using only one ETF per asset class means you miss out on having multiple funds that might be able to provide more opportunities to fine tune your portfolio. However, if you're an investor seeking moderate risk and decide that you want 60% of your portfolio in stocks and 40% in bonds. The advantage of this type of portfolio is its simplicity: one stock ETF and one bond ETF. It will be easy to see when you need to rebalance.

Middle of the road

This an intermediate approach to an all-ETF portfolio could consist of about 10 ETFs. This may consist of a mix of small cap and large-cap, international and emerging markets and when it comes to bonds you can pick Treasury bonds and Government-agency bonds, Mortgage-backed bonds and Investment-grade corporate bonds. If you want a little more complexity in your portfolio but don't have the time to do your own research, this approach might work well. You'll likely get at least one fund with solid fundamentals and low costs and another or two that have been carefully selected based on their potential as long-term investments.

The advantage of this portfolio can help provide balance. It has enough ETFs to give you coverage of more asset classes and the ability to adjust your portfolio weights in most areas, but not so many funds that it becomes too challenging to keep track. 

Fine-tuned

is a fine-tuned portfolio with 20 or more ETFs. This type of portfolio can make sense for investors who like to allocate their accounts toward exactly the parts of the market they expect to perform best. This approach gives you even more opportunities to fine tune your portfolio than the middle of the road strategy but then divides the various parts into thinner slices. Which may include specific stock sectors or specific bond indices or specific commodity ETFs.

The advantage of this portfolio is the ability to get almost exactly the exposure you want to each narrow piece of the market while still enjoying the diversification that ETFs offer over individual stocks and bonds.

Advantages of an All-ETF Portfolio

  • Diversified very well among various securities.
  • Generally low ongoing expenses.
  • Niche options available if desired.
  • Transparency at end of day.
  • Trading flexibility.
  • Seeks to match index performance.

ETF Examples 
VANGUARD DIVIDEND APPRECIATION INDEX FUND $VIG

The investment seeks to track the performance of the S&P U.S. Dividend Growers Index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.




REAL ESTATE SELECT SECTOR SPDR FUND $XLRE

Seeks to provide investment results that correspond generally to securities of companies in the Real Estate Select Sector. The index includes securities of companies from the following industries: Real estate & REITs(+mortgage REITs).





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