{"id":712914,"date":"2023-10-23T12:14:55","date_gmt":"2023-10-23T09:14:55","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=712914"},"modified":"2025-11-03T09:42:21","modified_gmt":"2025-11-03T07:42:21","slug":"building-etf-portfolio","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/investing\/building-etf-portfolio\/","title":{"rendered":"How to build a diverse portfolio with ETFs"},"content":{"rendered":"\n
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In collaboration with
iShares by BlackRock, a global leader in ETFs<\/strong><\/p>\n<\/div><\/div><\/div>\n\n\n\n

When building a diversified portfolio with ETFs, investors should consider their investment objectives, risk tolerance, and overall financial goals to select the right ETFs that align with their investment strategy.<\/p>\n\n\n\n\n\n\n

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Investing in ETFs (exchange-traded funds) can be an excellent way to diversify your portfolio and potentially achieve long-term investment goals. <\/p>\n\n\n\n

These investments often seek to track the performance of a financial index<\/e-tip>, offering an easy way to achieve diversification and potentially reduce the risk of your portfolio. <\/p>\n\n\n\n

In this guide, we will discuss some tips on how to build a diversified, ETF-focused portfolio and what to consider before you invest. <\/p>\n\n\n\n

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What is an investing portfolio?<\/h2>\n<\/div>\n<\/div>\n\n\n\n

A portfolio is a collection of various asset classes<\/a>, such as stocks, bonds, commodities, and real estate, <\/strong>ideally designed to help you spread out risk and maximize return.<\/p>\n\n\n\n

While you can create a  portfolio that\u2019s 100% invested in one asset class, for instance completely in stocks or bonds, many investors include different types of asset classes in one portfolio<\/strong>. This is known as diversification. <\/strong><\/p>\n\n\n\n

Diversification is all about investing in different asset classes, industries, and geographies to help minimize the impact of market crashes or economic downturns.<\/mark><\/em><\/p>\n\n\n\n

By investing in a diverse range of assets, you can help limit your exposure<\/strong> to any one company or sector and benefit from the potential performance <\/strong>of different stocks and industries. <\/p>\n\n\n\n

Diversification helps you to balance out the risk-return<\/e-tip><\/strong> of your investment portfolio, hopefully giving you a better chance of meeting your financial goals.<\/p>\n\n\n\n

For instance, consider stocks and bonds. Stocks have tended to perform better over the long-term than bonds.1<\/sup> But that higher reward comes with greater risk: Stocks have historically lost value about three out of every 10 years.[1]<\/small><\/p>\n\n\n\n

Bonds, on the other hand, have historically lost value only one out of every 10 years1<\/sup>.<\/p>\n\n\n\n

That means bonds have generally risen in value when stocks fell in value<\/strong>. <\/p>\n\n\n\n

Extrapolate further, and you can see that including both stocks and bonds in your portfolio may allow you to use one as a hedge<\/e-tip><\/strong> against the other. <\/strong>As a result, diversifying the asset classes within your portfolio can be a good option for those looking to trade in different market environments.
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As you can see, diversifying the asset classes within your portfolio may be able to help you make money in various kinds of market environments. <\/mark><\/p>\n\n\n\n

1<\/sup>Source: Morningstar, BlackRock. Stocks are represented by the S&P 500 index from 3\/4\/57 to 12\/31\/22 and the IA SBBI US large stock index from 1\/1\/26 and 3\/4\/57. US bonds are represented by the Bloomberg US Agg Bond TR index from 1\/3\/89 to 12\/31\/22 and the IA SBBI US Gov IT index from 1\/1\/26 to 1\/3\/89.Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in an index.<\/strong><\/em><\/p>\n\n\n\n

What is asset allocation?<\/h2>\n\n\n\n

So how much should you allocate to each type of asset? Well, it depends.  <\/p>\n\n\n\n

For example, a relatively younger investor with a long-term goal (like retirement) <\/strong>may consider allocating more of their portfolio to assets with higher risk, <\/strong>like stocks, to take advantage of potential higher long-term returns. <\/strong><\/p>\n\n\n\n

On the flip side, an <\/strong>individual closer to or in retirement may want to allocate more of their money towards conservative investments <\/strong>like bonds to reduce the potential of losing a substantial amount of money <\/strong>in any given year. <\/p>\n\n\n\n

This strategy is called asset allocation, or aiming to balance your investment portfolio based on risk tolerance<\/e-tip>, goals, and time horizon<\/e-tip>. <\/mark><\/em><\/p>\n\n\n\n

Asset allocation involves dividing your portfolio into different asset classes<\/strong>, such as stocks, bonds, and cash, to achieve a desirable risk and return outcome<\/strong>. <\/p>\n\n\n\n

The goal of asset allocation is to reduce the effects of market volatility<\/e-tip> by spreading the risk across different assets<\/strong>. By diversifying your investments, you can gain exposure to different markets and sectors and avoid putting all your eggs in one basket.<\/p>\n\n\n\n

Achieving diversification with ETFs vs. individual asset classes <\/h2>\n\n\n\n

To build your portfolio, you could go out and buy a bunch of individual stocks and bonds (or other asset classes) to meet your asset allocation and risk target. However, this could be costly in terms of time and money<\/strong>. <\/p>\n\n\n\n

Let\u2019s break it down:<\/p>\n\n\n\n

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Building a portfolio with individual assets <\/strong><\/td><\/tr><\/tbody><\/table><\/div><\/div><\/figure>\n\n\n\n
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Advantages<\/strong><\/div>
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