ETF Asset Classes

By: Pete
Date posted: 11.23.2011 (11:23 am) | Write a Comment  (0 Comments)

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Up until today, we have taken different looks at why you should build your ETF portfolio and the first steps. Eventually, as you get closer to your first few trades, it becomes important to take a deeper look into the different types of ETF’s that can be found on the market. As in most financial markets, the easiest way to classify them is by asset class. Depending on how much money you have to invest in this portfolio, you will gain exposure to a variety of these asset classes. As your assets grow, it is likely that you will add a few ETF’s to the list of your holdings but don’t expect me to recommend anywhere close to 20-25 ETF’s. You can get the exposure and diversification required with a much simpler approach. Here are the main asset classes that you can look into when building your own ETF portfolio.

Equity ETF’s: Stock exposure
Bonds ETF’s: Bond exposure
Commodity ETF’s: All types of commodities such as agriculture, energy, metals, etc.
Forex ETF’s: Currencies
Alternative Asset ETF’s (real estate, private equity, hedge fund replicators, etc)

Those are the main asset classes but among those you will find several sub-classes, styles or categories. First off, you will usually want to get geographical exposure to other regions. In general, for stocks (and ideally for bonds also), investors want to get exposure to:

-Their own country
-US markets (for non-US investors)
-Emerging markets (China, Brazil, etc)
-Europe, etc

For bonds, it’s also important to get some exposure to both government and corporate bonds as they react very differently depending on the circumstances. For most investors that do not fall in the “wealthy category, exposure to bonds and stocks is more than enough to get decent returns.

As you accumulate wealth, you might want to add additional exposures such as commodities, REIT’s, actively managed ETF’s, sub-categories such as dividend ETF’s, derivative based ETF’s that either return inverse or leveraged returns.  However, in most cases, these would be part of speculative ETF portfolios rather than longer term retirement portfolios. I received many questions about examples. I will be providing detailed portfolio examples but here is one example of asset class that should be part of an ETF portfolio

5 Asset Classes:

Domestic Stocks
International Stocks
Emerging Market Stocks
Government Bonds
Corporate Bonds

If you added 4 additional asset classes, it could look like the following:

Domestic Stocks
International Stocks
Emerging Market Stocks
Government Bonds
Corporate Bonds
Foreign Bonds
REIT
Inflation Protected Assets (bonds, gold, etc)
Income oriented stocks

Again, we strongly encourage you to sign up for our newsletter for a detailed step-by-step plan that will guide you through the process. Sign up for free here:


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