Spreading your investments with ETF’s

Within every investment portfolio the spread of your investments forms the backbone of a solid and risk-avoiding strategy. To attain a high and stable return a smart spread of your investments is crucial.

The same goes for ETF trading and ETF investing. There are numerous ways to make sensible spreads with ETF’s. Here I will get into some examples.

Automatic spread with ETF trading

Within a particular ETF you are investing in a basket of stocks. So with ETF’s you are automatically spreading your investments. You will not be much vulnerable for failures or financial disasters with individual companies.

Mind: when you are investing in a single commodity ETF (which is not an ETF but an ETC to be precisely), of course you are vulnerable for the movement of that singular commodity.

Spreading among different ETF’s

This seems a very straightforward way of investing, but I need to explain this a bit further. Because in most cases it won’t be a very smart move to spread among many ETF’s of the same nature.

Buying 4 different index ETF’s on the CAC 40, DAX, BEL 20 and AEX is in a technical way a spread, but it will not be a smart spread. Al these index ETF’s move in similar ways.

But a combination of an index ETF, a geographical ETF, a market sector ETF and a commodity ETF will be a much wider and smarter spread.

Mind: it is not necessary to spread contrary (that is for instance the case when you buy an index ETF and a gold ETF, the price of gold will rise when market indices go down sharply). Important in spreading is to focus on the 5 year graphs of ETF’s.

Whenever a 5 year graph from one ETF is not copying the movements of another ETF you are spreading with a strategy. For a good spread the prices of 2 ETF’s much form tops and bottoms in different timeframes.

Spreading in short terms and long terms

Suppose an ETF will increase by 30% in the first 6 months. Then it will go down for 3 months with 40% and then it will rise again during 3 months with 25%. By only long term investing you would not have made a high return.

By mixing short term and long term investing you would be able to make a nice return the first 6 months and the last 3 months of the year. This is a spread between short term return focused investing and long term investing in the hope to get an even better return.

It is all possible to make a spread within the same ETF between short and long term strategies. But you also can do it with different ETF’s. An example of this mixed strategy between 2 similar index ETF’s would be going for the long term with a BEL 20 index ETF as the BEL 20 does not have high swings up or down in the short term.

At the same moment you will buy a DAX index ETF for the short term as the DAX does swing up or down in short periods of time despite the fact that both DAX and BEL 20 will have similar annual graphs. So you can mix more volatile ETF’s and more stable ETF’s within the same group of ETF’s.

Another example would be a long term index ATF combining with a more short term focused market sector or commodity ETF (that is a mix between different groups of ETF’s).

Spreading in time

It is important not to invest a free budget in a short period of time or at once. Take your time to await opportunities. Haste makes waste and this is o so true at playing the financial markets. In most cases it will be a wise move to invest your budget over a period of months.

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