A good ETF strategy will depend on your investment goals, risk tolerance, and time horizon. However, here are a few general principles to keep in mind when developing an ETF strategy:
Index-based strategy: This strategy involves investing in ETFs that track a specific index, such as the S&P 500 or the Nasdaq 100. The advantage of this strategy is that it provides broad market exposure with low expense ratios. By investing in index-based ETFs, you can gain exposure to the overall performance of the stock market, without having to select individual stocks. Index-based ETFs are typically designed to provide a diversified portfolio of stocks that represent a particular market or industry sector.
- SPDR S&P 500 ETF Trust (SPY): This ETF tracks the S&P 500 index, which is a benchmark of 500 large-cap US stocks. Year-to-date, the ETF has had a return of around 9% (as of April 2023).
- iShares Russell 2000 ETF (IWM): This ETF tracks the Russell 2000 index, which is a benchmark of 2,000 small-cap US stocks. Year-to-date, the ETF has had a return of around 11% (as of April 2023).
Sector-based strategy: This strategy involves investing in ETFs that track a specific sector, such as technology, healthcare, or energy. This can be a good way to gain targeted exposure to specific industries. Sector-based ETFs allow investors to invest in specific areas of the market that they believe will perform well in the future. This can be a good way to diversify your portfolio and potentially increase your returns. However, sector-based ETFs can be riskier than index-based ETFs because they are concentrated in a specific sector.
- Technology Select Sector SPDR Fund (XLK): This ETF tracks the technology sector of the S&P 500 index, which includes companies such as Apple, Microsoft, and Facebook. Year-to-date, the ETF has had a return of around 8% (as of April 2023).
- Health Care Select Sector SPDR Fund (XLV): This ETF tracks the healthcare sector of the S&P 500 index, which includes companies such as Johnson & Johnson and Pfizer. Year-to-date, the ETF has had a return of around 10% (as of April 2023).
Dividend-based strategy: This strategy involves investing in ETFs that focus on high dividend-paying stocks. This can be a good way to generate regular income from your investments. Dividend-based ETFs provide exposure to stocks that have a history of paying high dividends to their shareholders. These stocks are typically well-established, financially stable companies with a long history of consistent dividends. Dividend-based ETFs can provide investors with a source of steady income, which can be particularly useful in retirement.
- iShares Select Dividend ETF (DVY): This ETF tracks the performance of US stocks that have a history of consistently paying high dividends. Year-to-date, the ETF has had a return of around 12% (as of April 2023).
- SPDR S&P Dividend ETF (SDY): This ETF tracks the performance of US stocks that have a history of consistently paying dividends. Year-to-date, the ETF has had a return of around 11% (as of April 2023).
International strategy: This strategy involves investing in ETFs that provide exposure to international markets, such as emerging markets or developed markets outside of the US. This can be a good way to diversify your portfolio globally. International ETFs allow investors to invest in markets outside of the US. This can provide diversification benefits and potentially higher returns, as foreign markets can sometimes outperform US markets. However, investing in international markets can also expose investors to currency risk and political risk.
- iShares MSCI EAFE ETF (EFA): This ETF tracks the performance of developed market stocks outside of North America, including companies in Europe, Asia, and Australia. Year-to-date, the ETF has had a return of around 8% (as of April 2023).
- iShares MSCI Emerging Markets ETF (EEM): This ETF tracks the performance of emerging market stocks, including companies in China, India, and Brazil. Year-to-date, the ETF has had a return of around 3% (as of April 2023).
Bond-based strategy: This strategy involves investing in ETFs that track a specific bond market, such as US Treasury bonds or corporate bonds. This can be a good way to generate fixed income with low risk. Bond-based ETFs invest in a portfolio of bonds, which provide a fixed rate of return to investors. This can be particularly useful for investors who are looking for a low-risk investment that provides a regular stream of income. Bond-based ETFs can also help to diversify a portfolio, as they are typically less volatile than stocks.
- iShares Core US Aggregate Bond ETF (AGG): This ETF tracks the performance of the US investment-grade bond market. Year-to-date, the ETF has had a return of around 2% (as of April 2023).
- Vanguard Total Bond Market ETF (BND): This ETF tracks the performance of the US investment-grade bond market. Year-to-date, the ETF has had a return of around 1% (as of April 2023).