How to use ETFs in your portfolio

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.

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.