Now that the dust has settled and investors are faced with the task of rebuilding their portfolios, there are some exchange traded fund (ETF) strategies you can use to accomplish your goals.
Traditionally, financial planners and advisors have recommended that one use their age as a benchmark to gauge how much risk should be in their portfolios. However, Jan Alexander of Forbes states that times have changed and the rules of diversification and risk-taking have followed suit.
In order to mitigate some risks and maximize the performance of a portfolio, she offers several helpful strategies:
- Do what the Ivy League School Endowments do. Stay diversified by allocating 15%-30% of a portfolio to the following five categories: U.S. stocks, foreign stocks, bonds, commodities and real estate investment trusts (REITs).
- Use ETFs. They can help you accomplish your goals of diversification. They also offer low costs, transparency, tax efficiency and intraday trading ability.
- The dividend strategy. Choose stocks and ETFs that pay dividends. The reason behind this is that dividends don’t fluctuate like earnings do and it enables one to more accurately forecast the performance of a portfolio.
- Look at emerging markets. Many investors have already sought out Brazil, Russia, China and India, known as the BRIC nations, because of their economic growth and prosperity. A good way to access the BRICs is through the use of the iShares MSCI BRIC Index (NYSEArca: BKF), which is up 67.5% year-to-date.
- Check out short-term bonds. Aas the economy recovers, interest rates will increase and the value of a bond purchased today will lose value. A good way to do this is through the iShares Barclays 1-3 Year Treasury Bond (NYSEArca: SHY), which is up 0.4% year-to-date and has a yield of 2.85%.
- Consider alternative assets, such as commodities and currencies. As emerging markets continue to prosper, raw materials and resources will continue to be in demand. Alternative asset classes are an essential part of a well-balanced portfolio. A good way to grab exposure to the broad based commodity markets is through the iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG), which is up 0.3% year-to-date.
In addition to considering these strategies, the most important strategy you can use is one that gets you into the markets in time for any potential long-term uptrend and has you out with a stop loss to protect yourself on the downside. You can read more about the strategy we use in The ETF Trend Following Playbook.
For more stories on strategy, visit our trend following category.
Kevin Grewal contributed to this 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.