February 22, 2008 at 1:00 am by Tom Lydon
These days, the investment world is all about diversification to minimize risk, and exchange traded funds (ETFs) can help you get the necessary exposure. ETFs are a great diversification tool that can help buy-and-hold types and active traders alike.
Matt Kranz for USA Today questions why someone would own two stocks when they could own two ETFs instead. We have to agree with that one. Owning more stocks, rather than fewer, is a benefit because you can reduce your portfolio’s overall risk and your exposure to possible problems with just one or two companies.
If you’re more domestic-minded, you can start with the S&P 500, and the S&P 500 (SPY). It has relatively low risk and a broad base. For bonds, there are large baskets put together by iShares with the Lehman Aggregate Fund (AGG) or the Vanguard Total Bond Market (BND). For broad global exposure, there’s the Vanguard FTSE All-World ex-US ETF(VEU) gives broad global exposure.
By keeping your mix more diversified, you lower your risk and increase your expected returns. Getting and staying diversified with ETFs is easy.
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