Instead of painstakingly picking out individual stocks, investors can utilize broad index-based exchange traded funds to efficiently and cheaply diversify their portfolios.
The chances of a regular investor crafting an outperforming portfolio are pretty slim as even the average active manager has a hard time outperforming benchmark indices. Most often than not, the time and effort involved in picking a good stock would more than offset the performance gain. [Passive ETFs Gain Ground Over Active Funds]
Instead of trying to beat the markets, investors can utilize passive funds like index-based ETFs to track the markets.
For instance, Simon Moore, chief investment officer at FutureAdvisor, for Forbes points to four cheap and liquid ETFs that investors can consider incorporating into their strategic, long-term portfolios.
The Vanguard Total Stock Market ETF (NYSEArca: VTI), with a 0.05% expense ratio and 3,720 stock components taken from the CRSP Total Market Index, provides a cheap and broadly diversified equity option to capture the U.S. markets.