Investors looking to build a portfolio of ETFs may get caught up in the analysis of the fund provider, fees and tax structure. But when selecting an ETF, the single most important determining factor is how the index is constructed.
The makeup of the underlying portfolio of assets is key because it determines how the ETF will react to a variety of market conditions. This includes the security selection, weighting methodology and ongoing changes to the fund construction over time.
Passive Indexes
Typically the lowest-cost funds are passive indexes like the Vanguard S&P 500 ETF (NYSE: VOO) or Schwab U.S. Broad Market ETF (NYSE: SCHB). Both ETFs offer annual expenses of 0.05 percent or lower and track well-known indexes that rarely change over time. This style of fund is perfect ...
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