Tips for ETF Portfolio Allocation : NobleTrading Blog

Wednesday, March 11, 2009

Tips for ETF Portfolio Allocation

Many experts believe that the most appropriate portfolio allocation is the corner-stone for a trader’s success. One of the major advantages of Exchange Traded Funds (ETFs) is their flexibility which make them good instruments to profit from any market condition or to limiting risks or to save trading time. Right way of ETF portfolio allocation can help investors to achieve various goals. Here are some tips.

The ETF portfolio allocation should facilitate the traders trading goals. Fore example higher ETF allocation can help traders in retirement planning and in long-term profiting.
Fixed income ETFs are good instruments to fulfill income needs and equity ETFs also tend to provide higher dividends. Where as smart ETFs and leverage ETFs tend to provide more return (for higher risk).
ETF portfolio allocation should also match the risk tolerance. If the trader has higher risk tolerance he/she can allocate major portion of portfolio to equities and equity ETFs, where as if he/she has less risk tolerance it is better to invest more in ETFs tracking large cap stocks, broad markets, bonds and other liquid instruments/markets/sectors.
Tax benefits are a major ETF advantage and thus are better investment option for peoples with tax issues.
Investing in ETFs for longer time frames can help investors to take more risks.
Persons who wish to maximize the portfolio growth can opt to buy shares of certain high growth sector/market specific ETFs and/or ETFs which track small cap and value stocks.
Make necessary rearrangements of portfolio allocation with changing time and market conditions.