Exchange traded funds (ETFs) are a great alternative to mutual funds. They offer full transparency, intraday liquidity and flexibility, plus lower fees. There are also ways to target specific areas of the market and create a strategy with them, too.
ETFs are mutual funds that trade on stock exchanges, just as stocks do. Most are index funds, although there are a growing number of actively managed ETFs on the market. [How to pick apart an ETF.]
John Waggoner for USA Today has a rundown on some of the best benefits of ETFs and different ways to incorporate them into your portfolio.
- Hedge Inflation: The principal value of Treasury Inflation- Protected Securities rises with changes in the consumer price index, so check out iShares TIPS Bond ETF (NYSEArca: TIP) or PIMCO Broad U.S. TIPS (NYSEArca: TIPZ). Another option is to take some of the assets from your portfolio and allot them to iShares COMEX Gold (NYSEArca: IAU) to hedge inflationary fears. [How TIPS work.]
- Tilt: Tilt involves bringing up the aggressiveness of your portfolio by upping your exposure to a favorite sector. Look for areas that are up above their long-term trend lines (200-day moving average). [How to follow trends.]
- Income Seekers: There are plenty of dividend ETFs to select from, such as Vanguard Dividend Appreciation Index (NYSEArca: VIG). This way you get the upside of the dividend payers and less of the downside of the companies whose dividends are dwindling. [Why dividends are good for portfolios.]
- Basic: By investing in a total stock market fund, you are getting a large sampling of U.S. stocks. Vanguard Total Stock Market (NYSEArca: VTI) is an option if you’re the “set it and forget it” type.
For more stories about ETFs, visit our ETF 101 category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.