By taking the time to look at what stocks are included in the index an ETF is tracking investors can properly allocate their portfolios. If an ETF states “Middle East” or “Emerging” in the name, one cannot assume this is what they are going to get. [Traders Using ETFs in Place of Individual Stocks]
“A well-diversified portfolio holds investments from multiple asset classes. The benefit from this strategy is two-fold. First, portfolio risk is lowered, and second, performance is enhanced over time. Asset class selection plays an all important role in whether you earn benefits from diversification. Wall Street markets every asset class as the answer to an investor’s prayers, so it’s important to have a sound selection process,” Rick Ferri wrote for Forbes.
By simply looking under the hood at what stocks an ETF holds, investors can be assured they are that much closer to a properly diversified portfolio. After all, one should not judge a book by its cover, so why judge an ETF by a name?
Tisha Guerrero contributed to this article.