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Investing in ETFs: Core portfolio holdings

Investments » Investing In ETFs: Core Portfolio Holdings

Not so long ago, in 1993, the exchange-traded fund, or ETF, made its debut in the U.S. It was a puny new runt on the investing block, staring up at the behemoth known as the mutual fund.

But ETFs have matured and are now the investment of choice for many people.

A recent study by Vanguard concludes that investing in ETFs has grown popular due to several factors, including their lower costs and greater trading flexibility when compared with mutual funds.

Bankrate asked five professional money managers to offer their take on core portfolio holdings that all investors should own. Following are their recommendations.

Recommended core ETF portfolio holdings by Eric Roberge, CFP

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.

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