Follow these 10 ETF investment rules and build a global portfolio that will beat the benchmarks:
1. Liquidity First:
Before you even think of building an investment portfolio, you should set aside about six months of income in a “rainy day” account. This could be put into a money market fund or U.S. Treasury securities. Having this money set aside will ease your mind and allow you to be more open and creative with your global portfolios.
2. Separate Portfolios:
You should separate your core conservative portfolio from your growth portfolios. With the core conservative portfolio, your top priority is capital preservation and growth is a secondary consideration. Your growth portfolios are more speculative with capital growth as the primary goal. This is how the Chartwell ETF Focus List is organized and why my asset management and premium Global (core) and Emerging Markets (growth) Hedge portfolios are organized with the core/growth portfolio strategy in mind.
If you have a long-term perspective, you might consider annuities specially structured for ETF portfolios as your core portfolio.
3. Think Global and Really Diversify Your Portfolios:
You need positions in your portfolios that are likely to offset each other as unexpected events and market movements become a reality. This is not accomplished with different sectors ETFs or a mix of small cap, mid cap and large cap ETFs. Rather the goal is to have some investments that are on both sides of risks.
For example, if the US dollar declines, have some investments in precious metals or denominated in other currencies such as Switzerland or Australia or Singapore ETFs. If inflation heats up have some investments that hedge this risk such as timber, gold or Treasury inflation protected bonds (TIPs). If the dollar strengthens in 2010, EUM might be a good hedge as more speculative markets will likely take a hit. If political events or policies in one country take a turn for the worst, it is helpful to have investments in other well developed countries to offset any loss of value.
You get the idea, spread your risk and avoid having one ETF account for more than 5-10% of your core portfolio. While a rising tide does tend to lift all boats – some soar and others lag. In 2009 for example, while Russia (RSX), Brazil (EWZ) and Peru (EPU) were up over 100% in dollar terms through early December, Japan (EWJ) and Switzerland (EWL) were up less than 15%.
4. Be Careful What Countries You Pick:
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