ETFs and your portfolio: Experts weigh in on what percentage to own (2024)



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Exchange-traded funds or ETFs are baskets of securities that investors can buy and sell on a stock exchange. ETFs can also offer investors tax benefits, lower risk, and diversification in their portfolios.

To reach your investment goals, experts weigh to recommend what percentage of ETFs should be within your portfolio.

Why are ETFs a good choice to be part of a portfolio?

Experts say ETFs are appealing to all types of investors.

"ETFs cover pretty much any asset class or strategy type an investor could want," says Bryan Armour, director of passive strategies research for North America at Morningstar. "The best ETFs offer broadly diversified exposure at a low cost. This applies to everything from broad market index strategies to actively managed small cap value."


Furthermore, he says the proliferation of actively managed ETFs has resulted in solid active and passive options in nearly every corner of the market, making ETFs a one-stop shop as an investment vehicle.

"ETFs should make up as much of a portfolio as possible, all else equal. Funds take advantage of the only free lunch on Wall Street – diversification – which gives them an advantage over holding individual stocks," he says.

Are there certain factors that influence the percentages?

Investors may hold company stock or options, and ETFs aren’t prominent in employer-sponsored plans, Armour says.

"Some of the benefits of ETFs is lost in tax-advantaged accounts. So, ETFs are unlikely to fill an entire portfolio. But their cost and tax advantages should make them a priority for investors," he explains.

In this photo illustration, the homepage of the Internal Revenue Service (IRS) website seen on a computer screen through a magnifying glass. Investing in ETFs may reduce an investors tax burden. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images / Getty Images)

Understand the tax benefits of ETFs

Tim Courtney, chief investment officer at Exencial Wealth Advisors, tells FOX Business that there are a lot of ways to bundle stocks together, and ETFs are a special kind of wrapper because it has unique rules, specifically tax rules, that give them some advantages.

"If you’re investing in a taxable account (i.e. not in a retirement account), in terms of owning stock ETFs, your portfolio should probably make up close to one hundred percent," Courtney says. "These are likely the best wrapper to use because generally, the most commonly-used ETFs do not pay out capital gain distributions."

In addition, there is a certain tax ruling an ETF structure has that does not get extended to other fund wrappers like mutual funds, SMAs and limited partnerships, he says.

For retirement accounts, Courtney says that ETFs can still make sense but the tax benefit goes away.

"A good rule of thumb is to have somewhere between twenty to fifty percent in an IRA, because an advantage they still have over other wrappers is that they are easy to trade, most of the time free, and when you are rebalancing inside of an IRA, it can be done quickly," Courtney adds.

Ticker Security Last Change Change %
SPY SPDR S&P 500 ETF 513.12 -6.34 -1.22%

Why allocation should depend on the type of investor

ETFs may be a low-cost alternative to creating an investment portfolio.

"The amount of ETFs in a portfolio depends on what kind of investor you are, what your financial goals are, and what tools are utilized with your financial plan," says Robert Conzo, CEO and managing director at The Wealth Alliance. "A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."

To that end, Conzo says a more sophisticated investor may have additional needs.

"Tax-loss harvesting, active management and transparency of investments are some aspects of the portfolio that are required," he continues. "In this case, ETFs can be used in a more targeted way for a sleeve of the overall investment portfolio."

ETFs and your portfolio: Experts weigh in on what percentage to own (3)

Traders work of the floor of the New York Stock Exchange on Sept. 30, 2019, in New York City. (Spencer Platt/Getty Images)


According to Conzo, an example of this may be an investor who wants exposure to a specific sector, which may require detailed analysis for specific stock selection.

"Since ETFs are typically passive management, the ability to accomplish this goal could be limited. For this investor, a smaller allocation to ETFs may be warranted: e.g.10%-25% in ETFs," he says.

The bottom line, says Conzo, is that ETFs can be a low-cost alternative and an essential part of an investment portfolio or not.

"As with many financial planning questions, the answer to this is – it depends."

ETFs and your portfolio: Experts weigh in on what percentage to own (2024)


ETFs and your portfolio: Experts weigh in on what percentage to own? ›

ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."

What is the ideal portfolio weighting? ›

Understanding Portfolio Weight

At the broadest level, the portfolio may be weighted with 40% blue-chip stocks, 40% bonds, and 20% growth stocks. In that growth stocks category, the investor may want to dabble in emerging market funds, but with no more than 10% of the whole pie.

How much cash should you have as a percentage of your portfolio? ›

Cash and cash equivalents can provide liquidity, portfolio stability and emergency funds. Cash equivalent securities include savings, checking and money market accounts, and short-term investments. A general rule of thumb is that cash and cash equivalents should comprise between 2% and 10% of your portfolio.

What percentage of each sector should I have in my portfolio? ›

Investors can employ the five percent rule with sector funds. To diversify within specialty sectors, such as biotech, commercial real estate, or gold miners, investors keep their allocation to 5% or less for each.

What should my portfolio percentages be? ›

If you wish moderate growth, keep 60% of your portfolio in stocks and 40% in cash and bonds. Finally, adopt a conservative approach, and if you want to preserve your capital rather than earn higher returns, then invest no more than 50% in stocks.

What is a 70 30 portfolio? ›

This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income.

What is a good portfolio benchmark? ›

Investors often use the S&P 500 index as an equity performance benchmark because the S&P contains 500 of the largest U.S. publicly traded companies. However, there are many types of benchmarks that investors can use depending on their investments, risk tolerance, and time horizon.

Is 10% cash too much in a portfolio? ›

A good strategy to follow is to allocate around five percent of your portfolio to cash, although some financial planners might recommend up to 10 percent or 20 percent depending on your needs, life stage and risk profile.

How much cash should a 60 year old have in their portfolio? ›

At age 60–69, consider a moderate portfolio (60% stock, 35% bonds, 5% cash/cash investments); 70–79, moderately conservative (40% stock, 50% bonds, 10% cash/cash investments); 80 and above, conservative (20% stock, 50% bonds, 30% cash/cash investments).

How much of net worth should be in house at age 65? ›

The rule of thumb: A common rule of thumb for real estate allocation is to invest no more than 25% to 40% of your net worth in real estate, including your home.

What percentage of my portfolio should be ETFs? ›

"A newer investor with a modest portfolio may like the ease at which to acquire ETFs (trades like an equity) and the low-cost aspect of the investment. ETFs can provide an easy way to be diversified and as such, the investor may want to have 75% or more of the portfolio in ETFs."

How many ETFs should I have in my portfolio? ›

Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

How many stocks does Warren Buffett own? ›

Among the 45 stocks Berkshire Hathaway holds, the top 10 represent about 87% of the company's holdings. Here's a rundown of Buffett's 10 largest holdings based on Berkshire Hathaway's most recent 13F filing, filed Feb. 14, 2024.

Should a 70 year old be in the stock market? ›

Conventional wisdom holds that when you hit your 70s, you should adjust your investment portfolio so it leans heavily toward low-risk bonds and cash accounts and away from higher-risk stocks and mutual funds. That strategy still has merit, according to many financial advisors.

How much should a 75 year old have in stocks? ›

For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.

What is an aggressive portfolio allocation? ›

The Index-Based Aggressive Portfolio allocates more assets to mutual funds that mainly invest in equity securities (including real estate securities) than the Index-Based Moderate Portfolio, and the Index-Based Moderate Portfolio allocates more assets to mutual funds that mainly invest in equity securities (including ...

What is the weighted average of a portfolio? ›

Weighting a Stock Portfolio

The investor can calculate a weighted average of the share price paid for the shares. To do so, multiply the number of shares acquired at each price by that price, add those values, then divide the total value by the total number of shares.

How many funds make an ideal portfolio? ›

Unless you are very well versed with the markets and have expert knowledge about mutual funds, a good rule of thumb would be to own: Large Cap Mutual Funds: Up to 2. Maybe 3 at best. Beyond that, it doesn't make sense as there will be a great overlap in the shares owned by your mutual funds.

What is the ideal portfolio size? ›

It may be advised to add stocks based on your risk appetite, goals, investment budget, and interests. Some experts recommend keeping a minimum of 20 and a maximum of 60 stocks in your portfolio. However, you should analyze your goals first to pick a figure for yourself.

What is the formula for portfolio weightage? ›

Portfolio weight can be calculated by dividing the value of a specific position by the total value of the entire investment portfolio. Typically, values are measured in monetary terms, but in some cases, it can also be measured in the number of shares held.

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