Optimizing Your ETFs Portfolio - dummies

By Russell Wild

There’s no point to having dozens of exchange-traded funds (ETFs) in your portfolio if they are only going to duplicate each other’s holdings. So if you already own the entire market through diversified ETFs in all corner quadrants of the style grid — large, small, value, and growth — why add any industry sectors that are obviously already represented?

It would make sense to add a peppering of semiconductor stocks or utility stocks if you knew that semiconductors or utilities were going to blast off. (Of course, a rational investor would never say he or she knew anything about the future, other than that the sun will probably rise tomorrow.) And yet, taking on an added dose of semiconductors or utilities may still make sense if that added dose of either industry sector somehow were to raise your performance potential without raising risk. That could happen only if you chose an industry sector that is not closely correlated to the broader market.