How to Create an All ETF Investment Portfolio…

Because of the zooming popularity of ETF’s, issuers are rushing to create ETF is that incorporate virtually any financial asset that you can think of.

Let us recall that ETF’s are baskets of financial assets or securities in which you can buy a share. They have the liquidity and the trading characteristics of equities, lower costs than a mutual fund and automatic risk diversification. You do not need any complicated strategies or an investment in the underlying securities in order to create a comprehensive portfolio. After all, the objective of a well balanced portfolio is liquidity, risk diversification and the highest possible returns consonant with prudent risk management.

We will now demonstrate how you can create a balanced and well diversified portfolio without even leaving the universe of ETF investment. We will assume that you would like some exposure to a range of financial assets and markets as well as geographical and industry diversification. Your portfolio could be made up of these components:

Equity ETF’s: typically these funds will track equity indices so that you are not faced with the risk of investing in one or just a few equities directly. If you are generally bullish about a particular index (such as the S&P 500 or the Dow Jones), the appropriate ETF will give you exposure for a reasonable investment without the high risk and costs of buying the underlying equities that make up the index.

Industry ETF’s: these funds will concentrate on a particular industry or industry index by investing in the underlying securities (such as oil stocks for an oil index or gold stocks for a gold index). If you are bullish about a particular industry or sector, you can invest easily without the hassle or expense of buying the underlying stocks.

Commodity ETF’s: perhaps you might like a small investment in a commodity like oil or gold. Even if you know nothing about buying or selling commodities, all you have to do is to find the appropriate ETF and buy. Every time you want to exit the position, sell the ETF. As simple as that.

Currency ETF’s: you have heard about all the opportunities that arise out of trading forex in the forex markets but somehow you have never got round to finding out how. Now all you have to do to make a currency play or hedge a currency risk is to buy or sell the appropriate currency ETF.

Foreign markets ETF’s: with increasing globalization, you are becoming increasingly aware of the lucrative investment opportunities overseas. You may have even heard of the famous Goldman Sachs report that says that the investment opportunities for the next few decades are going to be in the countries they call BRIC (Brazil, Russia, India and China). Of course, you don’t have a clue about how to go about investing. You no longer need to concern yourself with this as long as the right ETF is available.

Bond ETF’s: Equity markets have not been performing recently and a trusted adviser has told that you need to diversify into bonds to obtain a steady return from your portfolio. You do not have the resources to spread out your investment and have worried about concentrating only on one or two bonds. The answer to your problem is a bond ETF. If you are willing to be adventurous, you could consider an emerging market bond ETF which not only offers a high yield, but also a currency play.

You may also wish to consider managing your portfolio with ETF Trend Trading.