Save Money and Profit By Taking Your Portfolio into Your Own Hands
The common belief among investors is that you need a significant amount of money to have a portfolio that provides exposure to different asset classes. As a result of this misconception, they may end up taking speculative trades, causing their portfolio to face wild swings.
The fact is that investors don’t really need a lot of money to have a portfolio that’s balanced and exposed to different asset classes. They can do this for a much smaller amount than they think, all thanks to financial innovation in the past few years.
The following are a few means investors can use to make a portfolio that holds different asset classes.
To get exposure to the stock market, instead of buying individual stocks, investors may look into buying exchange-traded funds (ETFs), like SPDR S&P 500 (NYSEArca/SPY). With this ETF, investors can get exposure to the S&P 500. Buying this ETF is like buying the entire 500 stocks on the S&P 500; when the index goes up one percent, the fund does the same. It also has low costs and can be traded during market hours.
Owning individual stocks can be expensive; investors may incur higher transaction costs. For example, buying 10 different companies in the portfolio would result in 10 transactions. Buying the SPDR S&P 500 ETF, on the other hand, is only one transaction and it gives you exposure to 500 companies. Remember, too, that individual stocks have their own risk.
To expose their portfolio to commodities, investors have many different options. One example would be United States Copper (NYSEArca/CPER). This ETF lets investors track the performance of copper prices.
Keep in mind that commodities usually have a significant amount of volatility due to many reasons—supply issues, a slump in demand, crop failure, and so on. To have a better portfolio that keeps away from volatility, investors may want to use an ETF like United States Commodity Index (NYSEArca/USCI). This ETF holds 14 different commodities futures contracts, ranging from precious metals to energy to industrial metals, grains, softs, and livestock. (Source: “USCI Profile,” Yahoo! Finance, last accessed August 21, 2013.)
Fixed income securities are essential to a balanced portfolio, as they tend to move in the opposite direction of the stocks. Investors can get exposure to fixed income securities through the Vanguard Total Bond Market ETF (NYSEArca/BND). This ETF provides investors with a holding in bonds with different maturities and provides dividends every month.
PowerShares DB US Dollar Index Bullish (NYSEArca/UUP) is one of many ETFs investors can use to add currency exposure to their portfolio. This ETF in particular makes investors money when the U.S. dollar goes up relative to other major currencies, such as the Japanese yen, the euro, and the Canadian dollar.
Gone are the days when investors needed a significant amount of money to have a well-balanced portfolio; through different ETFs they can certainly make their own. That said, investors should also keep in mind that the “perfect” portfolio that’s right for them is what gets them to achieve their goal—they needn’t take extra risks or try something they are not comfortable with.
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