3 Different ETF Strategies For Your Portfolio

Written by BlackRock

With today’s market volatility, you’ll want to be more nimble with your investment mix. We explore how you can use “passive” ETFs in an active way.

If the world of investing feels like it’s become more confusing lately, you’re not imagining things. Market swings, also known as volatility, have indeed been very dramatic. Volatility has increased approximately 43% from a year ago, based upon the Volatility Index (VIX) as of Feb. 25.

While all this doom and gloom can seem daunting, we believe investors can best seek to reduce volatility and capture opportunities in their portfolios by keeping it simple and focusing on two key things:

Now, you might ask, how can you be both broadly diversified AND selective with your investment choices? You may find what fits the bill is a strategy that seeks to leverage both the active and passive worlds of money management.

We’re talking about being “actively passive.” In other words, choosing passive exchange traded funds (ETFs) in an active manner can help you potentially reduce risk and create value. And with more than 1,500 ETFs available in the U.S. at the end of January, according to Markit, there are many ways you can use them in your portfolio.

ETF strategies – Don’t sit on the sidelines

The one thing you probably shouldn’t do when markets get choppy is cash out. As Russ Koesterich and Heather Pelant have discussed at length, cash is not a long-term strategy. Selling low and sitting on the sidelines until the market steadies itself means you’re more likely to buy high and miss growth opportunities to boot.

For example, if you had invested $10,000 in US stocks, as represented by the S&P 500 index during all 5,036 trading days of the last 20 years1, you would have returned 8.19%, and the value of your investment would have been $48,250, according to Index Fund Advisors. However, if you had missed the five days with the biggest gains, you would have returned just 5.99%, for about $32,000 total value.