How to build a winning portfolio using just ETFs

22nd June 2010

For long-term investors the key to making money is to hold a properly diversified portfolio. This has the advantage of smoothing out the fluctuations to produce stable returns without risking too much of your capital.

And according to Justin Urquhart-Stewart quoted in this article on Moneywise on building an ETF portfolio on the cheap, it's perfectly feasible to build a balanced and diversified portfolio using only Exchange Traded Funds.

"They have great flexibility – and if they are good enough for Warren Buffett they should be enough for you or me."

So how do ETFs work?

An Exchange Traded Fund (ETF) is essentially a portfolio of securities managed by an investment adviser just like a traditional mutual fund investment.

The main difference is that an ETF is listed as a company on the stock exchange.

ETFs are passive funds that aim to track the performance of an index rather than trying to beat it. This makes them cheaper and more transparent than actively managed funds, especially given that most managers tend to fall short of their benchmark.

"'You have a one-in-five chance of picking a UK fund that outperforms the market after charges over three years and an even lower chance of repeating that consistently," notes Adrian Shandley, from Premier Wealth Management, quoted on thisismoney.co.uk . "We think it is better to offer our clients a safer option.' 

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