For example, you might choose an active mutual fund in an asset class where you think a portfolio manager can outperform the market, but choose an index-based ETF in an asset class where you’re OK with what the market is offering (and want potential cost and tax benefits to boot).
Doing some quick math on my personal portfolio, I currently own 56% ETFs, 43% mutual funds, and 1% individual stocks. Of my mutual funds, about half are active and half are index.
That seems like a healthy balance to me, given my goals and risk tolerance. I’m also happy with the investment managers I’ve chosen, so I think I’m good to go when it comes to choosing both mutual funds and ETFs.
Excellent! One issue off the table.
On the other hand… a second look at my portfolio tells me I’m over-exposed to US stocks. Next step, and subject of a future post: Setting my asset allocation and determining rebalance frequency.
Jessie Szymanski is a vice president at BlackRock, which manages the iShares ETFs.