ETFs are well known for having exotic flavors and for being traded during the day. However, if that is all you know, you may jump to the conclusion that ETFs are the exclusive playground for day traders and hedge funds.
Did you know that ETFs are also a very viable and cost efficient way to build a long term investment portfolio? In many cases, ETFs beat mutual funds hands down in terms of cost, visibility and tax minimization.
Of all the ETFs that are out there, which ones make more sense as investments than as trades?
How about a sensible spread across stocks, bonds and alternative assets with geographic diversification thrown in for good measure. The mix of the portfolio depends on your age and investment objectives – seek guidance from your financial advisor for best results.
Start with State Street’s SPDR DJ Wilshire Total Market ETF (Amex: TMW). This ETF tracks the Dow Jones Wilshire 5000 Composite Index, the most comprehensive US equity index in existence. The index holds all US-headquartered companies with readily available price data and is comprised of approximately 5,000 issues.
Now that you have the U.S. stock market covered, what about the rest of the world?
Sticking with State Street, try the SPDR S&P World ex-US ETF (Amex: GWL). This ETF tracks a market cap weighted index that pretty much covers the investable universe of publicly traded companies headquartered in countries outside the U.S.
The World ex-US fund held 661 stocks as of 12.31.07.
See State Street’s website for more information.
Bonds are next.