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 Clinton Pelfrey, AFIM

Solid allocation strategy

Pelfrey says it is difficult to generalize about how many ETFs a person needs for a well-rounded portfolio.

"I don't know that there is a specific number of ETFs that is appropriate for every investor," he says. "Every client's situation is different."

Instead, Pelfrey tries to craft a plan appropriate for an investor's needs, goals, risk tolerance and time horizon. For some clients, that means a strategy focused on preserving capital. Others require a more aggressive approach.

"However, in most circumstances, we are striving for a broadly diversified portfolio strategy," he says.

For many clients, Pelfrey's firm will use a strategy centered on eight to 12 ETFs with exposure to a variety of asset classes.

But he says the funds listed above should do the job for many investors.

"You can build a solid allocation strategy to meet a broad range of objectives" with those funds, he says.


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