My preferred investment vehicle for assembling a well-balanced portfolio is exchange-traded funds (ETFs). These tools offer a low-cost, liquid, tax-efficient, and transparent method of investment exposure in each of the asset classes mentioned above. You get instant diversification with just a few ETFs rather than the complicated means of picking individual stocks or high fees of most mutual funds.

If you are new to ETFs, here is a primer on what they are and how they work.

I often urge investors that picking the perfect ETF isn’t as important as choosing positions that you can stick with through all conditions or that fit within your investment methodology. There are always going to be funds that are doing slightly better than yours or that save you a few basis points in fees. So what? Exposure, timing, and a better decision framework will always trump those minor details.

The Bottom Line

Experienced investors may scoff at the importance of assembling these asset allocation guidelines and investment exposure criteria. However, the truth is that you are probably already doing this work in your head whether you want to admit it or not. It becomes second nature once you get into the practice of dividing up each sleeve and understanding the pros and cons of any adjustments therein.

It’s also important to understand that a balanced portfolio may never truly be firing on all cylinders. The effects of diversification are such that some components will be doing well, while others start to fall by the wayside.

That doesn’t mean you should always abandon those temporarily weaker funds that are provide meaningful core exposure. It may simply be that they don’t fit in the current environment, but will prove their worth in other ways such as reducing volatility or providing income.

In my own practice, I am constantly refreshing these details to ensure my portfolios are balanced and sensible given the prevailing market conditions. In addition, I always advocate making incremental adjustments when needed to ensure proper structure is maintained throughout.

This article was republished with permission from FMD Capital.