As the new year approaches, investors can look to cheap index-based exchange traded fund strategies to create a well-rounded, diversified investment portfolio for 2021.
“Diversification helps investors to navigate fast-changing markets and stay the course to pursue their financial goals. This year offered a masterclass in how diversification through index-based ETFs could have helped the average investor avoid losing in a winning, albeit volatile, market,” Daniel Prince, Head of iShares product consulting for BlackRock’s U.S. Wealth Advisory Business and U.S. Head of iShares Core ETFs, said in a research note.
Prince argued that index funds can help all investors diversify at the single-stock and portfolio level.
“The point is that successfully timing the market with individual securities — buying and selling at just the right times — is difficult even for the most experienced investor. Some index ETFs can hold the whole market, a strategy which helps shield investors from sharp declines of a few stocks,” Prince said.
As investors look to rebalance their portfolios, Prince highlighted a number of iShares Core ETFs to build a low-cost, diversified portfolio in pursuit of one’s long-term investing goals. For starters, the iShares Core S&P Total U.S. Stock Market ETF (ITOT), which tracks the S&P Total Market Index, provides low-cost and convenient access to the total U.S. stock market in a single fund, ranging from some of the smallest to largest companies.
The iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which tracks the Bloomberg Barclays U.S. Aggregate Bond Index, provides broad exposure to U.S. investment-grade bonds and is a low-cost easy way to diversify a portfolio using fixed income.
Additionally, the iShares Core Growth Allocation ETF (AOR), which tracks the S&P Target Risk Growth Index, is a simple way to build a diversified core portfolio focused on growth using one low-cost fund. The fund is composed of a portfolio of underlying equity and fixed income funds intended to represent a growth allocation target risk strategy. Investors can use AOR to establish a long-term, balanced portfolio and combine it with other funds for particular needs like income.
For more market trends, visit ETF Trends.