First, determine if ETFs are right for you or not
Are ETFs right for you? That will depend on your goals, level of investing experience, and investing style. Also, with so many choices, it’s critical to determine which type of ETF best fits your overall strategy.
For Young Investors
Are you getting started with investing? Having an appropriate mix of investments—also known as asset allocation—can be a critical factor in the overall performance of your portfolio. How you determine your asset allocation depends largely on your comfort with risk and the time frame for your investments. Generally, the younger you are, the more risk you can afford to take with your investments. As you get older, you may be less interested in growth and more interested in protecting the value of your portfolio. Once you determine the right mix of stocks, bonds, and cash, identifying which ETFs to buy to build a well-diversified portfolio can be straightforward.
Use ETFs to fill some gaps
Are you looking to fill some gaps in your portfolio? Even if your basic asset allocation is well structured, you may have some gaps you’d like to fill. Perhaps you want exposure to some extended asset classes, such as commodities or REITs. An ETF can be a cost-effective solution that helps you target and diversify within a particular part of the market.
Use ETFs for short term trading
Are you confident about your market outlook? If you have a strong conviction on a specific style—growth or value—or sector of the market and you want to make a tactical investment with a small portion of your portfolio, an ETF can be a useful investment tool. ETFs enable you to get in and out of the market intraday. Some short-term traders employ sophisticated charting techniques to determine when to buy and sell an ETF. While this isn't a suitable investment strategy for long-term investors, it demonstrates another way ETFs can be used in the market.