Exchange-Traded Funds For Dummies, 3rd Edition

Chapter 25

Marrying ETFs and Non-ETFs to Make an Optimal Portfolio

IN THIS CHAPTER

Incorporating ETFs into an existing portfolio of mutual funds or individual securities

Spotting potential holes in an ETF portfolio

Choosing investments that best complement your ETFs

Determining if an annuity makes sense

This chapter gets shorter with every edition of this book. When I wrote the first edition of this book in 2006, building an entire, optimally diversified portfolio out of ETFs was just about impossible — sort of like trying to paint a landscape with no blues or yellows. There were holes — many of them. You could not, for example, buy an ETF that gave you exposure to tax-free municipal bonds. Not one. Nor was there a single ETF that offered exposure to international bonds. There was but one ETF at that time that allowed you to tap into international small-cap stocks.

Back then, when there were only 300 ETFs from which to choose, and many of those tracked the same kinds of investments (such as large-cap U.S. stocks), you had to look elsewhere if you wanted to invest in certain asset ...