Four Tips for Creating an Effective ETF Portfolio
Many investors will work with their financial advisor to examine specific investment needs and create a plan that accounts for financial goals and level of risk. An advisor will then create a portfolio that combines ETFs with stocks, bonds, mutual funds and other investments to provide a higher level of diversification and protection against downside risk. ETFs are known to provide liquidity within a portfolio and create a more holistic investing approach.
For investors who prefer to invest on their own and want to learn more about ETFs on their own, Barry Gordon, President and CEO of First Asset Exchange Traded Funds, offers these four tips:
1. Look at risk-adjusted returns
Consider ETFs that use alternative strategies to achieve the highest rate of return possible while maintaining lower overall volatility. Investors and advisors can find an appropriate level of balance between risk and return, such as that of a government bond-focused ETF (which will be much more stable and liquid) versus an emerging markets-focused ETF (which may have more short-term volatility) due to their underlying investments.
ETFs are extremely valuable to investors because with a single purchase you can access entire markets or strategies, giving you a very cost-effective way to build a diversified portfolio. Companies such as First Asset Exchange Traded Funds, provide ETF solutions that can complement a broader portfolio, may help mitigate risk and help protect against volatility.
3. Trading time is everything
During the first half hour of each trading day, as market makers establish fair values for ETFs, the bid/offer spreads are often widest and least accurately reflect where fair value should be for trades. Similarly, in the last half hour of the day, there are a number of reasons why trading patterns and valuations change rapidly resulting in pricing discrepancies. A good rule of thumb is to stay out of the market for the first 30 minutes and last 30 minutes of each trading day. North American Equity markets are generally open from 9:30am to 4:00pm EST.
4. Understand currency risk
Many investors don’t want currency risk with their international investing. Consider investing with currency-hedged ETFs. These ETFs give investors comfort that they are getting exposure to the asset class they are investing in, without having to worry about what the currency does.
Important information about each First Asset ETF Fund is contained in its respective prospectus. Individuals should seek the advice of professionals, as appropriate, prior to investing. This investment may not be suitable for all investors. Some conditions apply. Copies of the prospectus may be obtained from your investment advisor, First Asset or at www.sedar.com. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
The commentaries presented are prepared as a general source of information. They are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. The opinions contained in this document are solely those of First Asset and are subject to change without notice. First Asset assumes no responsibility for any losses or damages, whether direct or indirect, which arise from the use of this information and expressly disclaims liability for any errors or omissions in this information. First Asset is under no obligation to update the information contained herein.