Your Guide to Building a Globally Diversified Portfolio with ETFs

May 2021

It is often daunting and tedious for an average investor who wants to invest in stocks and build their own investment portfolio.

This is because there is a lot of research to be done on individual companies and sectors. You also have to align it with your risk appetite and monitor the ongoing developments as well.

Hence, one easier method to construct a portfolio would be through using exchange-traded funds (ETFs) or a combination of it. But first, lets understand what exactly ETFs are.

What are ETFs?

An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, which is then listed and traded on a stock exchange.

Your money is pooled with money from other investors and invested according to the ETF’s stated investment objective.

The assets under exchange traded funds (ETFs) continue to grow in number and popularity since their introduction in the early 2000s.

According to Statista, the assets went from US$204.3 billion in FY2003 to S$7.736 trillion in FY2020. Judging from the upward trajectory, the positive trend is most likely to continue and its up to investors whether they want to be a part of this unstoppable movement.

3 Big Advantages of using ETFs

There are numerous reasons behind the remarkable growth in ETFs across the globe. Below, we highlight 3 main advantages investors enjoy from investing in ETFs:

1) Diversification across sectors

One of the most significant benefits of using ETFs is the ability to diversify your risk by buying into a basket of stocks instead of just an individual stock.

A well-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. It invests in the top 500 largest market capitalization stocks in the U.S. and has generated decent returns since inception.

On the other hand, many investors may be bullish on the semiconductor space given the recent chip shortage. That said, for people unsure of which stocks can be used to leverage on this notion, ETFs can allow them to capture the broad-based performance of that particular segment with relative ease.

One such example is the Vaneck Vectors Semiconductor ETF (Nasdaq: SMH). At the time of writing, it has delivered an impressive 52.88% returns in the year 2020 and 37% annual returns over the past 5 years.

2) Relatively low costs

The big reason why ETFs are growing in popularity is also due to its low costs. ETFs are comparatively cheaper because they are passively managed as compared to actively managed funds like unit trusts (UTs) or hedge funds.

3) Liquidity

Last but not least, ETFs are able to offer high liquidity and transparency since they trade on stock exchanges like stocks. This means that they can be bought and sold anytime during trading hours.

This can be an important consideration for investors if they also want to determine the time as to when they purchase the ‘basket of stocks’. Simply put, they can add more of a particular ETF if it is undervalued amid a sharp correction or when the a particular industry is bullish over the long term i.e. cloud computing ETF.

That said, not all ETFs have the same level of liquidity. At the end of the day, the liquidity of an ETF depends on how liquid the shares it holds are, the trading volume of the ETF and the investment climate.

To summarize, ETFs can remove an investor’s pain points around choosing individual investments by offering a diversified and cost-effective investment vehicle across a basket of stocks/industries..

Steps for building a Global, Diversified ETF Portfolio

If you’re wondering about where to find ETFs with strong growth potential like the Semiconductors ETF mentioned earlier – FSM has actually come up

Step 1 – Learning the Basics (Pre-flight Checklist)

You can learn about the basics of ETFs and find out how to get started from ground zero.

With personalised tips for different investors, there are many esteemed speakers who will guide you through by sharing ideas and principles to build for yourself a functioning portfolio.

On top of that, you can discover some useful tools that are available on FSMOne.com to help you prepare for your ETF investing journey take-off.

Step 2 – ETF Investing Strategies (In-flight)

Next up, FSMOne will showcase various strategies to make your ETF investing journey a smooth-sailing one.

You can explore using a Regular Savings Plan (RSP) or incorporating fixed income ETFs in your portfolio – and discover how these can be helpful ways to help you stay invested and navigate your portfolios through the occasional (market) turbulence.

Personally, I intend to utilize the idea of combining RSP with ETFs for my kids as I am able to take small yet steady steps to build up a diversified portfolio through dollar cost averaging.

For those who are not sure what RSP is about, it is a monthly subscription plan that enables investors to invest a fixed smaller sum of money on a regular basis into their chosen investment product.

Step 3 – Capitalize on Opportunities through ETFs (Destination)

Lastly, FSMOne will also share on a wide array of global opportunities available through ETFs for investors to explore.

ETF sectors3

In this particular ETFestival 2021, you would be able to understand and find out the latest happenings inside China’s booming sectors including semiconductors, healthcare and technology sectors.

On top of that, investors can learn about other pockets of opportunities in Asia and the global banking sector too.

Conclusion

To conclude, ETFs have taken over the limelight recently due to its many advantages they offer to retail investors such as low cost and instant wide-spread diversification.

That said, with the availability of thousands of ETFs globally, an investor can be spoilt for choice. Timing is also another important aspect to take note as you might not want to buy all the ETFs for your portfolio at once.

With that in mind, you can definitely learn more about ETFs by joining ETFestival 2021, a virtual event organized by FSMOne.com on 15 May 2021 (Saturday) from 10am to 5pm.

Attendees can get to hear out many decent ETF investment ideas to harness and capture investment ideas and opportunities abroad.

Lastly, whether you are new or a veteran at ETFs, you would gain valuable insights as the speakers present the various ETF investing methods to employ when building a profitable and globally diversified investment portfolio.

So, grab your ETF ‘boarding pass’ at the FSM ETFestival below (click on the pic)!

FSM ETF Festival

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