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.

ETF assets soared from $161.7 billion in March 2004 to $1.71 trillion in March 2014, according to the Investment Company Institute -- an annual growth rate of about 26 percent. But ETF assets are still dwarfed by mutual funds' $15.23 trillion of assets as of March.

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 Roxanne Alexander, CFP

'Core market' funds

Alexander says that investing in ETFs can be done with a minimum of fuss and muss.

"They track an index and have low expense ratios," she says. "You don't have to keep track of individual stocks or monitor an active manager."

However, she adds that there is no "appropriate" number of ETFs that every investor should own.

"The number of ETFs would depend on the investor's risk tolerance and portfolio size," she says.

As a general rule, she would recommend the funds above. She says both the broad market ETF and the mid-cap value ETF are good "core market" funds.

"Adding a value fund will create diversification, as well as having the potential to increase returns over time," she says.

Alexander does not recommend using bond index ETFs and suggests purchasing an actively managed bond mutual fund instead.

"Bond managers can actually add value to investors," she says. "The bond markets tend to be more inefficient, so it's possible to find extra returns over the index by using an active manager."


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