5 Best ETF Trading Strategies for Beginners

2. Asset Allocation

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Asset allocation, the practice of distributing a portion of a portfolio across various asset categories such as stocks, bonds, commodities, and cash to achieve diversification, stands as a potent investment strategy. The accessible investment threshold of most ETFs simplifies the process for beginners to establish a fundamental asset allocation strategy tailored to their investment time horizon and risk tolerance.

Numerous ETFs are inherently designed to provide diversification. For instance, an ETF that mirrors a broad market index, like the S&P500, typically comprises a portfolio of stocks representing a varied array of companies across different sectors. Nevertheless, it’s crucial to recognize that not all ETFs possess inherent diversification. Some ETFs, such as the iShares US Technology ETF (NYSE:IYW), which focuses specifically on the technology sector, may exhibit less diversification compared to broader alternatives.