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Exchange-traded funds (ETFs) are often an essential part of a diversified portfolio thanks to their low cost, ease of access, liquidity, and large volume.
And as the U.S. enters its third year of a bull market, ETFs Release and introduction record Recently.
From ones focused on pet care and “sin” stocks to ones that measure online social sentiment, “there's an ETF for just about everything right now,” says Todd, ETF strategist at Strategas Asset Management. Thorne spoke on a recent episode of Yahoo Finance's Stock in Translation. Podcast (see video above or listen below).
So how do you know which stocks to invest in?
Mr. Song recommended adding both large-cap and small-cap stocks when selecting stock ETFs for your portfolio. This allows you to balance out the market's more volatile moments.
“Most of my portfolio will be large-cap stocks,” Song said. “However, there will be a period when these companies take a breather, and the more value-oriented corners of the market, such as the banks that dominate small-cap stocks, will take a leadership role.”
Having a portfolio that leverages both large-cap and small-cap ETFs gives you buffers when traditionally profitable trades inevitably take a downturn.
“When you buy small-cap stocks, you want to make sure you know what’s in the index itself, because…about 40% to 50% of the stock price is [the Russell 2000] “These companies are not profitable,” Song warned. [They’re] It's a zombie company. ”
“If you want to compete in small-cap stocks, you should at least use another index provider, such as the S&P 600, that has a profitability filter,” he continued. “So you're going to have higher quality companies going in there. Or you can hire active managers who make a living researching small-cap stocks. And if they do their job right, If you do, you'll find winning stocks and your investments will work out.”
Large-cap ETFs may seem like a more stable way to make money from your investments, but it's important to strike a balance to get the most out of your portfolio.
Mr Song advised investors to have a plan for what to do if the performance of their current investments is not stable, especially if the stock market is likely to fall sooner or later.
“I don't think it's a bad idea to have some kind of plan, depending on the time period and risk,” Song said. “You could buy a put option, or you could look at your current holdings and think, 'Maybe I should sell some of that and invest in small-caps or international stocks because there's too much growth in the mega-caps.' You can also diversify further, but just have a plan for when that fix will happen.”
On Yahoo Finance's Podcast Stocks in translationYahoo Finance Editor Jared Bricle and producer sydney freed We cut through the market chaos, loud numbers, and hyperbole to bring you important conversations and insights from across the investment landscape. To find more episodes, video hub or your Preferred streaming service.
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