Building an ETF portfolio...

A complete portfolio of ETFs is no more or less of a fool's game than a complete portfolio of mutual funds. After all, that's all ETFs are -- mutual funds.

That it's harder to "just pick stocks yourself" than you think.

That said, you are correct in noting that someone adding SPY to DIA holdings is fooling themselves if they think they have meaningfully diversified.

1) Very few people can afford to own enough stocks in large enough quantity to be reasonably diversified and not be paying a huge percentage of their funds towards commissions. Buying raw stock is just not that efficient for the smaller investor. 2) How would one add, for example, 5% to their stock portfolio and not get out of balance if you own individual stocks? Again, if you add a little to each different stock, the commissions are going to eat you alive.

An ETF (or index fund) does all this in one simple efficient package.

-john-

I think you have the right ideas about ETFs. They are a version of a mutual fund. Buying any collection of funds that all work in the same general part of the market or that significantly overlap is not wise.

There is a commentary from the professionals that the narrow niche ETFs are also probably not good for the average investor.

I am looking at ETFs that deal with indexes for markets in specific countries around the world, mainly Europe and China. China is a dangerous game and I see the ETF as both diversification in that market and letting a professional team do the work that I as a low key average guy cannot possibly do.

Other ETFs I am interested in are some REITs in different regions or kinds of markets and a few industrial index funds that seem to be generating strong returns.

Beyond all that my principal interest is individual stocks with global promise. The dollar is in trouble again and individual stocks based in the U.S. or traded on the American exchanges that show a broad global footprint are my principal interest and are the ones finding their way into my portfolio. I am suprised by how many positions in the portfolio are ETFs, however.

======================================= MODERATOR'S COMMENT: Thank you for trimming the previous post.

I have had some success with Fidelity Select funds which are actively managed sector mutual funds (e.g. gold, energy, telecommunications, etc.). Equivalent ETFs might offer similar performance at less cost.

Frank

Charlie, before buying a China ETF be sure to check this week's Barron's which had an interesting piece on the two China ETFs ("China Funds' Shell Game," Oct 30 2006). One of the ETFs has some conflicts of interest regarding the ETF promoter and the stocks added to the ETF, which might partially explain the big difference in returns.

-Tad

======================================= MODERATOR'S COMMENT: Thank you for trimming the previous post.

Now that we can post links again :-), here's the article:

Mark Freeland snipped-for-privacy@sbcglobal.net