Monday, December 10, 2012

Using an ETF Portfolio

With the introduction of no commission ETFs by some brokerages, I am considering using an all ETF investment strategy in one of my retirement accounts.  There are several benefits of doing this:
  1. Cost.  The index ETFs I am considering have expenses of about .1-.2%.  This is much lower than the 1% for a managed account, and often lower than mutual funds.  Even with some ETFs expenses at 0.5% the cost will still average out to be low.    I will be able to use commission free ETFs, which will keep down costs as a trickle funds back into the market.
  2. Diversification. ETFs are easy diversification, allow me to invest in a broad range of stocks through an index or sector.  However, ETFs are segmented enough such that I can weight exposure in different areas, such as small cap stocks, REITs, etc.  To me, this allows some active involvement over just investing in the S&P500 index.
  3. Simplicity.  Once I choose an ETF allocation, I can manage it by rebalancing periodically, probably on a monthly basis.  In volatile markets, I may choose a biweekly timing, but probably not more frequently.  I would also start focusing on macro trends and much less on individual companies.
Here are three articles that I will use to design my initial allocation:

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This is not financial or investing advice. Please consult a professional advisor.

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