Anyone can utilize passively indexed exchange traded funds to craft a diversified investment portfolio. But what exactly is ETF portfolio indexing?

As the name entails, ETF portfolio indexing is a portfolio comprised of index-based ETFs. Mitch Tuchman for Forbes points out the three basics every new investor to the investment vehicle should know.

“ETF portfolio indexing is owning ETFs (for their efficiency) in a portfolio (in order to rebalance when necessary) while attempting in each asset class to index (and thus beat active management over time),” Tuchman said.

To start off, ETFs are an investment tool that help investors gain exposure to a benchmark index through a single trade.

Before the advent of ETFs, investors would have to purchase every single security in a benchmark, such as the S&P 500 or Dow Jones Industrial Average, to replicate the index’s returns. Moreover, investors would have to regularly buy and sell hundreds of stocks to adequately mach the changes in the index.

With ETFs, investors can fully track an entire market, only paying a hundredths of a percent for the tool instead of trading hundreds of securities individually.

Showing Page 1 of 2