Diversification is key
Roberge says diversification is the key to building a successful portfolio.
"By its very nature, diversification actually reduces your overall investment risk," he says. "When one asset class does poorly, the hope is that other asset classes are doing well enough to uphold the portfolio."
Roberge says investors need to focus on two types of diversification:
- Diversification depth allows for diversification within a specific asset class. For example, rather than a single U.S. large-cap stock, the investor can use an S&P 500 ETF that offers a broader slice of the large-cap market.
- Diversification breadth focuses on the number of asset classes within a portfolio. For example, rather than simply owning an S&P 500 ETF that represents large-cap U.S. stocks, the investor can purchase ETFs that cover other asset classes, such as international stocks, U.S. and international bonds and real estate.
Roberge likes using ETFs because they make it easy to invest in funds that track various indexes. The proper mix of ETFs varies from investor to investor, he says.
"The percentages will vary depending on age, specific goals and risk tolerance of the investors," he says.