Market-cap weighted index fund exchange traded funds (ETFs) arguably can be the base of a well-rounded portfolio. The core building blocks of a well-diversified portfolio include small, mid and large-cap stocks, Seeking Alpha reports. Small caps include companies with a value less than $1 billion, mid caps are companies valued at $1 to $5 billion and large caps at more than $5 billion. Weighting by market cap, which is the most traditional indexing form, ensures low cost and low turnover in the funds. Portfolios that use these ETFs tend to follow the more common indexes that track the U.S. stock market’s performance.
Long-term investors might want to use large, mid and small cap ETFs or a single, total market ETF. Using large, mid and small cap ETFs helps balance your portfolio, but it also gives you more ETFs to manage. When selecting ETFs for your portfolio, know the stock holdings. Sometimes ETFs may have similar holdings and you don’t want stocks within them to overlap. Market-cap weighted index fund ETFs offer low costs and tax efficiency. For a list of some large, mid and small cap U.S. ETFs, see the Seeking Alpha article.
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.