Exchange Traded Funds – Portfolio Management

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Putting a portfolio together has become much easier because of exchanged traded funds. They are a low cost alternative to mutual funds. Since they trade like stocks, the best way to buy them is through a discount broker.

Things to consider:

  • Risk and return are linked
  • Spread risk by using asset allocation & diversify within the asset classes
  • Always keep some cash to pick up some bargains
  • Ignore the noise and take a long-term view
  • Make the most of tax shelters
  • Use the internet to do your own research

Selecting the right mix of assets should be based on your tolerance to risk and your time horizon. It is also important to have realistic expectations regarding investment returns. Markets do go through periods of  extreme exuberance and extreme pessimism.

Here are some examples of portfolios:

Conservative – 30% Stocks & 70% Bonds

  • 20% Domestic Large Cap Equity ETF
  • 5% Domestic Small Cap Equity ETF
  • 5% Domestic Equity Dividend ETF
  • 30% Long Treasury Bond ETF
  • 15% 3-7 year Treasury Bond ETF
  • 15% Investment Grade Corporate Bond ETF
  • 10% High Yield Global Corporate Bond ETF

Balanced – 60% Stock & 40% Bonds

  •  20% Domestic Large Cap Equity ETF
  • 10% Domestic Small Cap Equity ETF
  • 10% Domestic Dividend ETF
  • 20% International Equity ETF
  • 10% Long Treasury Bond ETF
  • 10% 3-7 year Treasury Bond ETF
  • 10% Investment Grade Corporate Bond ETF
  • 10% High Yield Global Corporate Bond ETF

Growth – 80% Stocks % 20% Bonds

  • 20% Domestic Large Cap Equity ETF
  • 20% Domestic Small Cap Equity ETF
  • 10% Technology ETF
  • 10% International Equity ETF
  • 10% Emerging Markets ETF
  • 10% Investment Grade Corporate Bond ETF
  • 10% High Yield Global Corporate Bond ETF

These examples are not recommendations but illustrate how to diversify within asset classes. Do your own research by visiting ETF providers’ web sites.  Compare similar ETFs and check to make sure that the fees are the same. Shop around, try not to purchase all your ETFs from one provider.

Here is a list of some large providers of ETFs:

  1. Blackrock – Ishares
  2. Bmo -ETFs
  3. Horizons
  4. Powershares
  5. Vanguard

Be cautious with regards to bonds, their risk levels have been elevated because of investor fear! The 10 year U.S. bond yield fell temporary below 2% this past week. Some experts believe that bonds are in a bubble and overvalued.

 

 

 

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