Using ETFs to Diversify Your Portfolio

by Peter Contino (Write for us!)
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If a flexible investment that offers a simple way to gain exposure to the market in a diversified, cost-effective way sounds appealing - then perhaps you should consider Exchange Traded Funds (ETFs).

A relatively new investment vehicle, ETFs represent a portfolio of stocks that are designed to track a corresponding index. Similar to a mutual fund, ETFs offer a diversified investment with a single product. However, ETFs offer liquidity by trading throughout the day like a stock. ETFs are also tax efficient and typically have a lower expense ratio than similar mutual funds.

Most wise investors partake in an asset allocation plan of some type. ETFs can be a beneficial tool in most allocation plans since the investor is essentially buying a slice of the market and has an investment in a broader number of companies.

There are many different types of ETF products currently trading, such as the S&P 500 SPDRs or the Dow Industrial ETF or "Diamond."

ETFs represent a share of all the stocks in their respective index held in a trust. Therefore, the investment return and principal value will fluctuate, and an investor's shares, when redeemed, may be worth more or less than the original cost.

Investors should consider an ETF's investment objective, risks, charges, and expenses carefully before investing. The prospectus, which includes this and other important information, is available from your investment professional and should be read carefully before investing.

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