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ETFs and your portfolio: Experts weigh in on what percentage to own
BlackRock’s Gargi Pal Chaudhuri: ETFs can help investors navigate volatility, stay invested
BlackRock head of iShares investment strategy Gargi Pal Chaudhuri discusses the value of ETFs and how they help investors stay invested on ‘The Claman Countdown.’
Exchange-traded funds or ETFs are baskets of securities that investors can buy and sell on a stock exchange. ETFs can also offer investors tax benefits, lower risk, and diversification in their portfolios.
To reach your investment goals, experts weigh to recommend what percentage of ETFs should be within your portfolio.
Why are ETFs a good choice to be part of a portfolio?
Experts say ETFs are appealing to all types of investors.
"ETFs cover pretty much any asset class or strategy type an investor could want," says Bryan Armour, director of passive strategies research for North America at Morningstar. "The best ETFs offer broadly diversified exposure at a low cost. This applies to everything from broad market index strategies to actively managed small cap value."
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Furthermore, he says the proliferation of actively managed ETFs has resulted in solid active and passive options in nearly every corner of the market, making ETFs a one-stop shop as an investment vehicle.
"ETFs should make up as much of a portfolio as possible, all else equal. Funds take advantage of the only free lunch on Wall Street – diversification – which gives them an advantage over holding individual stocks," he says.
Are there certain factors that influence the percentages?
Investors may hold company stock or options, and ETFs aren’t prominent in employer-sponsored plans, Armour says.
"Some of the benefits of ETFs is lost in tax-advantaged accounts. So, ETFs are unlikely to fill an entire portfolio. But their cost and tax advantages should make them a priority for investors," he explains.