You Name it, There's an ETF for That!

The #1 rule in investing is diversification. Thankfully, with ETFs nowadays we can instantly diversify our portfolios with ETFs! If you haven't already read my blog post about ETFs, it will help you define & understand what an ETF is...and its characteristics!

Why pay them, when you can do it yourself?

Now that we know what an ETF is, having to choose a handful of them to create a balanced portfolio is exciting but can be very overwhelming even for experienced investors! There are 4000+ ETFs to choose from and issuers are just getting started coming out with these products for retail (everyday) investors. It's nice to know that you can mock a balanced portfolio for essentially no commission/trading fees (depending on what platform you're using)!

There is no one-size-fits-all approach to investing!

Regardless of your timeframe and level of risk, there are funds for just about everything under the sun. The composition of your portfolio should reflect your unique self & need for liquidity. Are you a minimalist or a maximalist? A minimalist will most likely prefer a clean and simple broad spectrum portfolio whereas the maximalist might want to hold a laundry list of sectors & themes to play with.

A balanced portfolio can be as simple as owning 5 to 10 ETFs covering multiple asset classes & categories. Unfortunately, there isn't one magic fund that gives you the entire spectrum of classes, which is why it's crutial to own at least a handful that collectively give you full coverage. Each asset class is unique and should have a designated % allocation in your portfolio. Examples of such are: Stocks (Equity), Bonds (Fixed Income), Cash (Currency), and Hard Assets (Commodities). I will mostly be covering the equity ETF class for our discussion.

Be mindful that equity ETFs are grouped into further categories by size, style, location, and sector. Market-cap size determines whether the majority of the ETF holdings are micro, small, mid, or large cap companies. Total market ETFs can cover every size group. Additionally, the style of the ETF can be focused on growth, value, or a blend of both. When choosing location, you can select from different geographical regions to focus on such as domestic or international. There are ETFs that cover the top names for many developed & emerging countries around the world. Sector ETFs focus solely on the selected sector of the S&P index, or themes that represent companies within different niches of the market. Investors can often find momentum in themes that are trending or up & coming such as the AI Revolution or Clean Energy adoption. Remember that sector ETFs are more selective and must be paired with broader ETFs to maintain diversification within your portfolio!

Additionally, equity ETFs can be categorized as income generating if they contain companies that have a solid track record of paying dividends to their shareholders. High dividend stocks are often considered "value" names and can maintain steady income for a portfolio during market weakness.*Not to be confused with bonds/fixed income ETFs!*

Set it & forget it!

The good news for investors looking for a hands-off approach to investing passively via dollar cost averaging (DCA) is that there are broad spectrum, vanilla ETFs that mirror the major indices, giving you exposure across the total equity market! Some examples of these include SPY, VOO, or IVV (tracking the S&P 500 index), VTA (tracking the total market), and EFA (tracking international names).

Setting up automatic investments within your portfolio allow you to invest a fixed amount into one or multiple ETFs at the frequency of your choice. The beauty of dollar cost averaging is that you don't have to time the market, and fractional shares are bought with the money you can afford to invest each week or month. Overtime, these shares accrue and produce compounded returns with dividend re-investment.

Regardless of your strategy, remember that diversification is key to success!

XO

Hope