Investment Advice: Exchange Traded Funds as part of Your Investment Portfolio

Article Written By: Kathryn Dawson

What should I invest in? This is the most pertinent question for most individuals striving to formulate a financial plan. Zillions of books and millions of web pages are not sufficient to answer this question. This is because investment advice is not universal and one size does not fit all. It changes as per the unique situation and specific requirements of every individual. Thus, it is essential to consult an investment expert personally to devise a customised financial plan.

For their investment and retirement plans, many people do not want an actively managed portfolio but would rather invest in the lower cost option of passive funds, which will just track the selected market index. There are currently two main options available for passive investment: tracker funds or ETFs.

Seek investment advice on ETFs to understand how they could form an important role in your portfolio. According toCNN financial experts, ETFs are "invented to combine the simplicity and low costs of index mutual funds with the flexibility of individual stocks".

The main advantages are:

• Ability to track a wide range of market indexes, like the FTSE, SandP 500 etc.

• Diversified, global portfolio can be constructed relatively simply

• Costs can be low, but smaller investors should keep an eye on total costs of investment

• ETFs can be traded like shares

ETFs could form an important part of this portfolio as by buying a limited number of ETFs you could have a global, well diversified range of investments that track key market indices.

Do consult with your financial advisor, as they will be able to recommend an approach that fits in with your retirement and investment goals. They will consider which range of ETFs will fit in with your overall portfolio of investments, so that it is well diversified, suitable for the level of risk you find acceptable. Your advisor will also consider the total cost of investment and the tax implications of your investments.

Here are some tips for choosing an ETF:

• There are a large number of ETFs, across a broad range of markets available. Be clear about your objectives and do your research

• Choose ETFs with proven performance records or those listed on broad market indexes.

• Try to diversify your portfolio by investing in four or five ETFs. Diversification is a smart investment option, as it diffuses the amount of risk associated with a particular product.

Keeping it simple is the best strategy for smart ETF investments. Although they are not very complicated products, it is prudent to consult with a financial advisor London. They help to blend ETFs with other investment products to create a comprehensive portfolio. You can also seek other financial services, such as inheritance tax advice, SIPP investment and retirement planning, from an expert financial advisor.

About the Author

Kathryn Dawson - Financial Advisor London and inheritance tax advice.

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