MutualFundWire.com: Portfolio of 3 Simple ETFs Effective As 3 MFs

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Thursday, July 11, 2013

Portfolio of 3 Simple ETFs Effective As 3 MFs

IndexUniverse's Paul Britt picks up where WSJ's Anna Prior left off, taking her message about simple portfolios to the ETF world.

Combining passive funds into a simple portfolio will beat a portfolio of active funds, but the American investor is seduced by the idea of having a smorgasbord of active funds, as evidenced by the growth of ETFs.

It's easier for investors to understand their progress if they have a benchmark, and a simple portfolio of ETFs provides the benchmark, Britt writes.

Britt listed four leading ETF brands, BlackRock[profile] iShares, Vanguard[profile], State Street Bank & Trust[profile] SPDR and Charles Schwab[profile] and all of the ETF categories with their expense ratio and bid/ask in an easy to understand chart. Britt didn't advocate picking one fund firm for every asset allocation.

These ETFs are total market ETFs that deliver the balanced exposure to the market, Prior was talking about:

One benefit of the simple portfolio is that it lays the allocation decision bare—as it should be—rather than obscuring the issue with a thicket of fund choices. In short, the performance differences between any of these funds matters far less than how much of the portfolio is parked there.