We all know that diversification is key when it comes to investment strategy. And, when you are doing your financial planning with investments, it is important to understand your options. Often, reaching your financial goals in terms of investment strategy means more than just stocks and bonds, with the occasional mutual fund dropped in the mix. And one way you can diversify your investment strategy is to include exchange-traded funds (ETFs) into your finances.
What are ETFs?
Exchange-traded funds are interesting investment strategy options that track indexes, but that can be traded as if they are stocks. Interestingly enough, there are now currency ETFs that track groups of currencies, but that you can still trade like stocks. These currency ETFs are great ways to hedge if you are involved in forex trading and you have assets tied up in the dollar (not terribly smart right now, by the way).
In any case, ETFs can track a variety of indexes, and many people choose to invest in foreign ETFs, such as stable versions from countries like Switzerland. You should also note that while ETFs follow an index, they do not include actively managed mutual fund portfolios. Because such instruments do not disclose their holdings more than a few times a year, it is difficult for ETFs to know when to adjust.
Using ETFs to diversify your investment strategy
If you are look for increased diversity in your finances, ETFs can offer that. You get a relatively stable option that provides regular growth. Like mutual funds and stocks, there are ETFs that are more aggressive than others. Currency ETFs can be quite volatile (though not as volatile as directly investing in a currency), for example. On the other hand, there are ETFs that have more conservative holdings that grow at a slower pace. Choosing ETFs can be an interesting way to ease into a more diverse investment strategy.
More information on exchange-traded funds can be found at CNN Money.
Disclaimer: All investment represents risk. You run the risk of losing money in any investment, no matter the advice. The author cannot be held liable for your investment strategy.