To maximize returns and minimize risk, the smart investor requires a diversified portfolio. Usually, one of the best ways to make a diversified portfolio was to invest in mutual funds. However, if you are seeking to invest on your own, without expensive fees or a professional fund manager, how can you expand your personal portfolio without spending hundreds of hours of research? To duplicate what an expert money manager does when making mutual funds, he would have to offer full hours to researching the stocks, the fundamentals of the company, the trends, and the bond markets. Most of us do not have time for that.
The variety of exchange traded funds (ETF) available in the market is amazing. Here is a small sample of funds that you could use to begin building a diversified portfolio. By selecting the appropriate asset allocation, you could develop your own fund that meets your objectives like growth, value or interest income.
S & P 500
One of the best ways to increase your long-term capital is to invest in large-cap companies. If I had enough time and money, I could buy shares in each of the S & P 500 companies, but that is out of reach for most of us. Luckily, ETF can make this type of investment feasible. You buy shares in a fund that in turn invests the money in S & P 500 shares. The stock price is indexed to the S & P 500, so as the S & P 500 grows, the value of your shares increases or decreases with it, allowing you to follow the general progress of the stock market.
The Dow Jones Industrial Average
In the current market, the Dow Jones Industrial Average, which tracks the 30 largest companies, is not considered the best largely an indicator of market performance. Even so, the Dow continues to play a role as one of the main indicators of the overall performance of the stock market and the state of the economy. If it is to your liking to follow the Dow Jones Industrial Average, then an exchange fund that is available is the Dow Diamonds Fund.
Do you want to take advantage of the expanding gold market, but do not want to store gold bars in your home? The ETF that follow the prices of valuable metals provide you a way to do it. Examples include the gold fund SPDRS (GLD) and the iShares Gold Trust, which follow the price of gold bullion. It is also possible to invest in other precious metals, such as silver and platinum, with negotiated funds.
There is an ETF for almost anything and this is great for the free investor since it is a simple way to enter bonds. Any smart investor will have a diversified portfolio that includes bonds, but unfortunately buying bonds as an individual is a bit more difficult than stocks and usually requires larger investments. A very easy way to solve these problems is to find an exchange fund that invests in bonds that suits your tastes.
Each portfolio must have a small amount invested in real estate, and an Exchange Traded Fund is a relatively simple and inexpensive way to do it. An example is the SPDR Dow Jones Global Real Estate ETF. This fund follows a Dow Jones index that tracks global real estate. There are several other options that can be used to track various sectors of the real estate market.
Fortunately, ETF offers an alternative to mutual funds for the independent investor. Like mutual funds, exchange-traded funds track multiple stocks or bonds in a single fund. But the good thing about ETF is that you can trade them just like individual stocks.