What is the optimal number of ETFs?
"You can get broad-based diversification with one ETF, commonly referred to as diversified ETFs, or you can build a portfolio of five to 10 ETFs that would offer good diversification," he says.
ETFs based on global stock indexes can be used to create a 70/30 portfolio. These ETFs are broadly diversified and aim to replicate the global stock market. According to the 70/30 rule, you would use an ETF to invest 70 percent of your capital in developed countries, and 30 percent in emerging markets.
Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.
SPY, VOO and IVV are among the most popular S&P 500 ETFs. These three S&P 500 ETFs are quite similar, but may sometimes diverge in terms of costs or daily returns. Investors generally only need one S&P 500 ETF.
"You can get broad-based diversification with one ETF, commonly referred to as diversified ETFs, or you can build a portfolio of five to 10 ETFs that would offer good diversification," he says. The choice you make on the above depends on your investment goals and risk appetite, like any investment.
"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
Average Return
In the past year, QQQ returned a total of 33.17%, which is significantly higher than VOO's 25.74% return. Over the past 10 years, QQQ has had annualized average returns of 18.70% , compared to 12.80% for VOO. These numbers are adjusted for stock splits and include dividends.
VOO typically provides a higher dividend yield compared to SPY. This aspect is particularly attractive to investors who prioritize income generation from their investments.
While each ETF offers a basket of stocks, buying multiple ETFs can offer diversification based on objectives. It's possible to buy shares in a growth-oriented ETF and allocate some of your capital toward an income ETF.
How long should you hold ETFs?
Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.
Diversification: A well-diversified portfolio should include ETFs that cover different asset classes (stocks, bonds, commodities, etc.), sectors, industries, and geographical regions. This spreads risk and reduces the impact of any single investment on the overall performance.
Specifically, a fund is prohibited from: acquiring more than 3% of a registered investment company's shares (the “3% Limit”); investing more than 5% of its assets in a single registered investment company (the “5% Limit”); or. investing more than 10% of its assets in registered investment companies (the “10% Limit”).
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
While it is possible to live off ETF dividends, you'll need to do some careful planning to make it happen. You'll need to balance how much income your investments bring in and how much you spend.
Build a fully diversified portfolio with just 4 ETFs
This level of diversification can help reduce your overall investment risk while making it easier to manage your portfolio.
One is enough, but you're probably getting too many when you're getting above 5 or 6 because it's just like you covered all the major geographies of the world. And then when it comes to your satellite, you know, you could have 20 thematic ETFs and active ETFs if you wanted to.
| ETF | Assets Under Management | Year-to-date Gain* |
|---|---|---|
| iShares U.S. Technology ETF (IYW) | $17.1 billion | 24.0% |
| iShares Russell 1000 Growth ETF (IWF) | $90.9 billion | 21.7% |
| iShares Bitcoin Trust ETF (IBIT) | $19.5 billion | 35.2% |
| Roundhill Magnificent Seven ETF (MAGS) | $333.6 million | 37.8% |
The majority of individual investors should, however, seek to hold 5 to 10 ETFs that are diverse in terms of asset classes, regions, and other factors. Investors can diversify their investment portfolio across several industries and asset classes while maintaining simplicity by buying 5 to 10 ETFs.
Level of Assets: An ETF should have a minimum level of assets, with a common threshold being at least $10 million. An ETF with assets below this threshold is likely to have a limited degree of investor interest, which translates into poor liquidity and wide spreads.
Should I have an all ETF portfolio?
You don't have to choose just one. Once you know the basics of ETFs, you can consider building an all-ETF portfolio that meets your tolerance for risk and your financial goals while retaining the low investing fees that made ETFs so popular in the first place.
This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.
| Schemes | Latest Price | Returns in % (as on Jul 03, 2024) |
|---|---|---|
| Nippon ETF Nifty 100 | 265.21 | 8.89 |
| SBI - ETF BSE 100 | 277.95 | 9.05 |
| SBI Nifty IT ETF | 397.13 | 8.08 |
| ABSL Nifty ETF | 27.78 | 7.98 |
A lazy portfolio is a collection of investments that require minimal management. It typically consists of a few (or even one) diversified, low-cost index funds or ETFs (exchange-traded funds). You can also get index mutual funds that will also do the job.
Many people pair VOO with the Vanguard Total Bond Market ETF (BND) in a broader portfolio. The fixed income ETF has $95 billion in assets and is the largest bond ETF trading in the U.S. BND has two-thirds of its assets in U.S. government bonds, with most of the remainder in investment-grade corporate bonds.
