Find the right type of ETF for your portfolio
(NC) No matter what's in our financial portfolio - stocks, bonds, or mutual funds - the goal for most Canadians remains the same: to have enough money saved to enjoy a comfortable retirement.
But, how do we get there?
Increasingly, financial experts are advising all of us to diversify our portfolios by adding Exchange Traded Funds (ETFs), which are now one of the more cost-effective ways to save for the golden years.
“ETFs are similar to mutual funds in that they hold a collection of investments (such as stocks and bonds) but they trade like a stock on the exchange,” says Tim Trian, an investment advisor at HollisWealth. “This type of fund gives investors exposure to a variety of different publicly traded securities, sectors and strategies and are as simple and inexpensive as buying and selling a stock.”
Trian adds that investors who are new to ETFs should consider a more holistic approach, combining ETFs with stocks, bonds, mutual funds and other investments to provide a higher level of diversification and protection against downside risk.
“ETFs are great because with a single purchase, investors have access to entire markets or strategies in a very cost-effective way,” he continued. “You can achieve well diversified portfolios while only holding very few ETFs.”
Companies such as First Asset Exchange Traded Funds (www.firstasset.com) provide ETF solutions that can complement a broader portfolio, mitigate risk and help protect against volatility. This particular ETF product-shelf is made up of those that focus on delivering superior risk-adjusted returns relative to the broad market.
“It's vital to construct a portfolio that provides an appropriate level of balance between risk and return, and meets your objectives,” adds First Asset CEO, Barry Gordon. “For a good portfolio, you want to have exposure that will rise while other areas of the portfolio may be experiencing some weakness, which will smooth the volatility of the overall portfolio, helping you meet either your short or long-term investment objectives.”
When selecting ETFs, Gordon points out the factors to consider include the objective of the ETF, risk-adjusted performance, and how it helps to achieve your investment goals. From there, it's a matter of buying and selling the ETF as you would any other stock.
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