HOW TO USE ETFS IN YOUR PORTFOLIO

Understand why ETFs are a great addition to your portfolio and can add value to your existing investments

You probably already have an endgame in mind as you think about investing in ETFs. It could be for retirement, for a property or your child’s education. Or perhaps the reason for investing with ETFs is to simply broaden and balance your portfolio.

What you will discover?

  • Why ETFs are a great tool to add to existing investments
  • How ETFs can help you manage your wealth
  • How the range of goals that ETFs can achieve can better guide your investment choices

What investment gaps might I have?

You may already have a handful of investments that you’re familiar and comfortable with. Are these stocks? Managed funds or assets like property? Market conditions change, so skilled investors are constantly looking for ways to improve their portfolio. It could as simply as diversifying to help reduce risk or seeking new ways to potentially maximize profit

How ETFs give you protection and profit

Diversify1

Build a strong core for your portfolio with ETFs. They provide broad, reliable, and flexible ways to help seek to achieve returns that are in line with the market to ensure your money is always working hard for you

Maintain Income

Cashflow is important; you should have access to the money you need day-to-day. Choosing a fixed-income ETF for example that holds bonds or other fixed-income assets can potentially give you steady returns for a rainy day.

Minimize Volatility

Volatility can drive investors to abandon their investment plans and try to time the markets, which may risk jeopardizing their long-term goals. Some ETFs offer minimum volatility strategies that may appeal to investors seeking to manage risk while also participating in the market.

Maximize Value

If you already have the basics covered, why not push the limits and explore new opportunities? ETFs can give you targeted exposure to different markets and assets with varying degrees of risk and return.

Long-Term Gain

The great thing about ETFs is that they are flexible enough to suit both short-term goals and long-term goals. ETFs being index-tracked means you can pick an index with a track record for long-term growth and sit back let the market run its course.

How could I change my portfolio with ETFs?

It’s all about balance. No different from your diet, your portfolio must also be balanced. With the sheer range of ETFs available, it’s easy to access an expanded range of assets and opportunities that will help give your portfolio a little bit of everything.

A Core and Satellite approach to investing

And one way of potentially making your portfolio both balanced while seeking to generate returns you want is to use a ‘Core-Satellite’ approach (think of planets revolving around the sun). The ‘Core’ part – the sun at the center - is typically made up of long-term, relatively lower risk investments. The ‘Satellite’ part of the portfolio – the planets – is made up of potentially higher risk investments that can maximize returns or build greater diversity.

The building blocks or the core of your strategy could include a fixed-income ETF or an ETF tracking the Hang Seng Index or the Straits Times Index for example. These may be lower in return but should help provide more stable returns within your portfolio. For the ‘satellite’, perhaps consider selecting sectors that may be performing well, or even just investing in single stocks. This has the potential to supplement the core with investments with higher return.

Investing this way can give a truly diversified portfolio with low cost, efficient, potentially more stable market returns; while also provide potentially higher returns from more niche select investments.

Remember the sheer variety of ETFs mean they can feature across both the core and satellite aspects of your portfolio.

Points to take away

  1. Look at your portfolio and examine what you are missing out on? How much currency risk are you willing to take on? Are there emerging markets you want to invest in?
  2. ETFs give investors access to different assets, different markets and different investment strategies and risk levels to meet any investment objective
  3. Investment portfolios are like your diet—they must be balanced and can always be improved

ETF INSIGHTS

4 TRENDS DRIVING ETF GROWTH

Examine four ETF growth trends which are most likely to carry global ETF assets to US$14 trillion by the end of 2024.