Exchange-Traded Funds for Dummies

As a rough rule, if you have $50,000 to invest, consider something in the ballpark of a 5- to 10-ETF portfolio, and if you have $250,000 or more, perhaps look at a 15- to 25-ETF portfolio. Many more ETFs than this won’t enhance the benefits of diversification but will entail additional trading costs every time you rebalance your holdings. (See my s

Reaching for the elusive Efficient Frontier means holding both stocks and bonds — domestic and international — in your portfolio. That part is fairly straightforward and not likely to stir much controversy (although, for sure, experts differ on what they consider optimal percentages).

Stocks of large companies — value and growth combined — should make up between 50 and 70 percent of your total domestic stock portfolio. The higher your risk tolerance, the closer you’ll want to be to the lower end of that range.

And they know that asset allocation, not stock picking, is what drives long-term investment results.

According to Bloomberg Indices, the current CAPE Ratio for the U.S. stock market is about 38, versus 23 for Europe, 24 for Japan, 19 for Korea, 17 for Spain, and 11 for Russia. You want your portfolio to include U.S., European, Pacific, and emerging-market stocks, but if you are going to overweight any particular area, you may want to consider the

Lately, I have been splitting the difference: Putting perhaps 3 to 4 percent of a portfolio in pure commodities (using one of the funds I identify earlier in the chapter) and perhaps another 3 to 4 percent in one of the funds I outline next.

The S&P is considered your baseline, and it is assigned a beta of 1. So if you know that Humongous Software Corporation has a beta of 2, and the S&P shoots up 10 percent, Jimmy the Greek (if he were still with us) would bet that shares of Humongous are going to rise 20 percent. If you know that the Sedate Utility Company has a beta of 0.5,

I tend to like my ETFs vanilla plain, maybe with a few sprinkles. I like them to follow indexes that make sense. And, above all, I like their expense ratios looooow.

ALL-IN-ONE ETF FOR PRECIOUS METALS One simple approach to precious-metals investing is worth considering: the ETFS Physical Precious Metals Basket Shares (GLTR), an ETF that was introduced in October 2010. In one fund, you get a basket of four precious metals: gold, silver, platinum, and palladium, each in proportion to its economic footprint. Shar