How to Build an ETF Portfolio
Start with a basic diversification that would give you broad U.S. and international exposure, including some emerging markets plays, as well as some fixed income, depending on your risk tolerance, says Culloton. If you're a risk taker and have time on your side, you probably could afford to go all-equities. If not, Culloton recommends that 10% to 30% be in fixed income.
For your U.S. exposure, the Vanguard Total Stock Market VIPERs (VTI) and the iShares S&P 500 Index (IVV)
are relatively cheap. The iShares Russell 3000 Index
On the international front, consider the iShares MSCI EAFE Index Fund
If your ulcer (or common sense) requires some fixed income in your portfolio, check out the iShares Lehman 1-3 year Treasury bond (SHY). Especially with the interest rate uncertainty out there, fixed income could be a wise choice.
Get Some HelpETFs have been around for a while now, so there's a ton of info to help you make some good choices. But here are two good places to start. Morningstar recently released its ETF 100: 2006 book, which details the top 100 ETFs available. In addition, the company has created a "fair value measure" for each sector ETF. This is basically a report explaining why Morningstar feels each sector is either over or undervalued. For example, its analysts currently believe the real estate and energy sectors are overvalued, while the consumer products and financials sectors are undervalued. So now might be a good time to check out those sector ETFs. This measure will soon be available on the Morningstar Web site, so be on the lookout. You can also check out Fidelity's "Build an ETF Portfolio" tool. It allows you to pick different ETFs and adjust the weightings in your hypothetical portfolio. Also, be sure to check out TheStreet.com's ETF section for new developments in the ETF industry, including new ETF offerings. Many of us long for simplification -- like my poor mother, who can't seem to figure out how use the TV in my house -- but it has to make financial sense. So do some investigation before you decide if simpler really is better.
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