Take Advantage of Current Market to Rebuild Your Portfolio with ETFs

The severe bear market is providing investors a rare opportunity to remake their portfolios while incurring little or no capital gains taxes.

In the article It’s a Great Time for a Makeover, New York Times contributor Paul Lim relays advice from financial planners that now is the time for investors to think about overhauling their portfolios. The current bear market has wiped out gains from the past 10 years leaving many people in a position where they would have little or no taxes to pay from selling existing holdings.

In particular, advisors are recommending to diversify portfolios while lowering expenses. Foreign stocks and real estate had been relatively expensive before the markets began their slide. Now foreign stocks trade at a P/E of 10, down from 14 in 2007. Real estate investment trusts or REITs are down 40%.

Investors can lower expenses by shifting out of stocks, bonds and mutual funds and into exchange traded funds. ETFs offer instant diversification at a much lower cost than the typical actively managed mutual fund. Lim suggests looking at iShares S&P 500 (IVV) , an ETF with an expense ratio of 0.09%.

ETFs that offer exposure to REITs include the FTSE NAREIT Industrial/Office Index Fund (FIO) and Cohen & Steers Realty Majors (ICF). For more on real estate, see Investing in REITs with ETFs.

ETFs that provide broad access to foreign stocks include the MSCI EAFE Index Fund (EFA) and Vanguard FTSE All-World ex-US ETF (VEU). For a complete listing, see the International ETF Directory.

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