Most investors, who rely on all ETF portfolios, are convinced with the idea owing to the ease of diversification that is achieved through this route and a wide spectrum philosophy, which is a given when it comes to the nature of the asset kitty and while choosing the investment focus.
American markets today, have hundreds of ETFs on offer that enable exposure among all traditional assets classes such as treasuries, cash and equity and even to an extent of typical assets classes like a Regular Income ETF that delivers monthly dividend pay-outs to its investor. The variety available also brings a fair share of confusion, simply because customers have too many choices, when they venture out to create a sound ETF Model.
ETFs, like mutual funds provide exposure to a basket of stocks with a common investment objective while being attached to an underlying index but these market traded funds have lower operational costs as compared to mutual funds while their transparency and liquidity is much higher.
Most ETF managers publish a daily list of assets and being market traded, all buy-sell transactions are basis live prices, refreshed every 15 - 20 seconds.
It is the logic of keeping it simple that works out best in this arena. In contrast to the direct equity investment, ETFs gives its participants a variety of similar equity with the same investment focus thus reducing a major portion of risk that may arise from a company specific movement.
To exemplify, say folks who are aggressive on a certain sector like IT or Auto may add respective exposure by investing in individual stocks, but the similar amount of money in an ETF investment will add on a pool of Auto or IT equity and in this case, the returns are a median of the performance of these collective stocks.
Standardised returns are possible with ETF portfolios because unlike actively managed mutual funds, the former is passively managed and ETF strategists focus on establishing good pure play products rather than outperforming the index they are attuned to.
The probability of good returns over a long term is higher when the returns are procured via averages and so is its certainty.
However some pre investment self analysis is very important and will aid in developing a securer ETF Portfolio and one can begin by answering the following questions:
How much money should I invest in an all ETF Model?
Your asset allocation is directly affected by your risk appetite, the actual time frames when you may need to withdraw and primarily your own expectations of returns.
To an extent, your tax and legal liabilities must also be factored in and make sure that the ETF investment is well aligned to your overall investment scheme.
Which ETF should I Buy?
Again your risk tolerance is a big factor when choosing a Global ETF, but an easy way to accomplish this id to realise that nature of products suit your allocation pattern the most and once decided then phase your entries over 6 - 9 months tenure.
Post investments, investors should evaluate the holdings at least annually and then it is much easier to link your portfolio deliverance to your concurrent financial needs and status.
Those who seek retirement in near future may have very different investment objectives in contrast to investors who are in their thirties and forties, similarly while choosing the equity traded funds, folks with a longer horizon may encourage a small cap bias because over the long term there potential value growth may be higher than their larger cousins as per the market laws.
This and more needs to be factored in while creating a sustainable and exclusive ETF model that works around your benefit, although professional help is recommended but be sure that whatever your investment goals may be, there is an ETF for you.
Toroso Investments is an ETF Portfolio advisory firm based out of New York and already manages a fortune for many of its clients. The firm apart from being SEC recognised also holds a licensed investment solution designed by the AG & G Structures Solution, Germany which is also behind the making of S&P Indices.
As per the management, their most notable feature is the "Point of view investing" and the Toroso investment philosophy simply means that each ETF model must be able enough to deliver as per the investor needs and should depend least on the market conditions.