Exchange Traded Fund (ETF) (2024)

FAQs

How many ETFs is enough? ›

"You can get broad-based diversification with one ETF, commonly referred to as diversified ETFs, or you can build a portfolio of five to 10 ETFs that would offer good diversification," he says. The choice you make on the above depends on your investment goals and risk appetite, like any investment.

Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

ETFs typically track a specific market index, sector, commodity, or other asset class, providing investors with exposure to a diverse range of securities in a single investment. Their benefits include liquidity, lower expenses than mutual funds, diversification, and tax advantages.

You only need one S&P 500 ETF

For others, it's all minutia. All three of the ETFs listed here have lower-than-average expense ratios and offer an easy way to buy a slice of the U.S. stock market. You could be tempted to buy all three ETFs, but just one will do the trick.

Example of a Solid Three-ETF Portfolio

One option for a solid three-ETF portfolio could be to include the Schwab U.S. Dividend Equity ETF (SCHD), the Vanguard S&P 500 ETF (VOO), and the Invesco QQQ Trust (QQQ).

ETFs make a great pick for many investors who are starting out as well as for those who simply don't want to do all the legwork required to own individual stocks. Though it's possible to find the big winners among individual stocks, you have strong odds of doing well consistently with ETFs.

Build a fully diversified portfolio with just 4 ETFs

This level of diversification can help reduce your overall investment risk while making it easier to manage your portfolio.

Know the Risks

Single Stock ETFs: Are not in the best interest of long-term investors. Lack diversification. Pose leveraged and compounding losses.

A Classic Lazy Portfolio contains the main traditional asset classes, with the aim to achieve above-average returns while taking a below-average risk. A Modern/Alternative Lazy Portfolio can use particular assets/strategies, with the aim of obtaining an extra return.

How much of your money should be in ETFs? ›

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.

Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.

Most ETF income is generated by the fund's underlying holdings. Typically, that means dividends from stocks or interest (coupons) from bonds. Dividends: These are a portion of the company's earnings paid out in cash or shares to stockholders on a per-share basis, sometimes to attract investors to buy the stock.

ETFs or "exchange-traded funds" are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio.

ETFs have several advantages for investors considering this vehicle. The 4 most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs versus like mutual funds, and potential tax benefits.

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.

One way to think about it is every three months taking whatever excess income you can afford to invest – money that you will never need to touch again – and buy ETFs! Buy ETFs when the market is up. Buy ETFs when the market is down.