Crafting Your Portfolio? Consider Exchange-Traded Funds (ETFs)

Learn how retail investors, even those with limited funds, can pursue a diversified portfolio mix using exchange-traded funds (ETFs). Investing in ETFs can provide exposure to a wide variety of markets, sectors, and asset classes.

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The great Renaissance artist, Michelangelo, once said that every block of stone has a statue inside it, and it is the task of the sculptor to discover it. Michelangelo’s “stone” can be taken as a metaphor for almost anything that must be crafted with great precision. That said, it doesn’t take much of a leap of imagination to see how this maxim applies to the craft of building an investment portfolio.

Much like an artisan, your goal as a self-directed investor is to meticulously design a portfolio that reflects your financial goals, interests, time horizon, and risk tolerance. As in Michelangelo’s example, your proverbial “block of stone” is none other than the bundle of markets and assets available to you. And the larger your bundle of markets, the more choices and flexibility you have in shaping your portfolio.

But as a retail investor, you might be wondering how you can possibly spread your money across an extended range of markets given your limited resources. There is a potentially low-cost solution to this obstacle: exchange-traded funds, or ETFs, can offer exposure to a wide variety of markets, sectors, and asset classes. And TD Ameritrade clients can start with the company’s ETF Market Center, a broad collection of ETF products and research tools.

Using ETFs to Help Broaden Market Exposure

Before we continue, let’s remember that a well-designed portfolio can take on many different forms and can include a wide range of financial instruments. It can be narrowly focused, or highly diversified; customized to suit more conservative tastes, or designed to go all-out aggressive; limited to a single domestic sector, or open to a mix of global assets.

However you decide to build your ETF portfolio, make sure you understand how each fund’s investment objectives, risks, charges, and expenses align with your own financial goals and tolerance for risk. You can find most of this information in each ETF prospectus. [TD Ameritrade clients can call 800-669-3900 to obtain a prospectus. Read carefully before investing.]

Navigating the ETF Market Center

So how might you get started? First, you’ll need a comprehensive list of ETFs—preferably one that allows you to view ETFs by markets, asset classes, and investment style.

See figure 1 below. If you take a look at the tabs on the left-hand side (yellow box), you’ll notice that ETFs are categorized by market sector, investment style, commodities, global and emerging markets, and individual stock selection.

ETF market center

FIGURE 1: WHAT ARE YOUR INVESTMENT GOALS?

TD Ameritrade clients can use the ETF Market Center to target potential investments. Filter by sector, investing style, asset class, geography and more. Image source: TDAmeritrade.com. For illustrative purposes only.

Sector. Suppose you’re interested in gaining exposure to a specific sector in the stock market.

ETF sector screener

FOR ILLUSTRATIVE PURPOSES ONLY.

By selecting, for example, Financial Services in the menu, the screener will pull up all available ETFs under the financial services category.

Notice that the green button toward the bottom right informs you that there are exactly 46 ETFs matching your preferred category. To see all 46, you simply click on that button.

If you look toward the middle of the window under “Highest rated ETFs,” you’ll notice that the second ETF on the list has a green price tag icon. The green price tag indicates that a particular ETF is commission-free (in fact, the ETF Market Center offers access to more than 300 commission-free ETFs).

Investment style. What if you are also interested in viewing ETFs by investment style? If you click on the “Match a style of investing” tab, the screener will retrieve a list of small- to large-cap ETFs containing value, blend, and growth securities.

Commodities. Let’s say you want to diversify your portfolio by including some commodity exposure. By clicking on the commodities tab, you can find a selection of ETFs across a wide range of commodity classes including agriculture, energy, industrial and precious metals, and more.

ETF emerging markets screener

FOR ILLUSTRATIVE PURPOSES ONLY.

Global and emerging markets. Perhaps you’re bullish about a specific region in the world. There are ETFs that can give you exposure to international equities. Just click on your preferred region.

Search by individual stock. And finally, if you want to search ETFs by individual stock, you can use the last tab to pull up all ETFs carrying your stock of choice. Just enter the stock’s ticker symbol into the search field and all ETFs containing that stock will be listed.

Detailed Analytics

With access to such an extensive range of markets, let’s not forget to drill down on each ETF, its components, and performance analytics.

Suppose you’re interested in a specific ETF. Clicking on it will pull up a collection of stats and tools including a comprehensive summary, performance, ratings and risk, portfolio holdings, and technical charts—all things that might help you better evaluate an ETF.

ETF statistics tools

FIGURE 2: DRILL DOWN ON THE DATA.

Once you've identified a potential investment, you can research ETF performance and risk analytics, compare it to benchmarks, and read analyst ratings. Image source: TDAmeritrade.com. For illustrative purposes only.

300+ Commission-Free ETFs

TD Ameritrade is also home to the widest selection of commission-free ETFs—more than 300 are available. If you want to view them all, TD Ameritrade’s Commission-Free ETFs page lists them by category, fund family, market cap, and alphabetical order.

While commission alone shouldn't determine whether you should consider a specific fund, commission-free investing at TD Ameritrade can have benefits, namely a savings of $6.95 on either side of a transaction (when held for more than 30 days). This means potentially reducing costs when you rebalance your portfolio, or if you invest via dollar-cost averaging.

Building a self-directed ETF portfolio can be a daunting task; there are so many ETFs to choose from. If you have no time at all to self-direct your investments, you could consider managed portfolio solutions from TD Ameritrade Investment Management, LLC.*

But if you’re up to the task, having access to a wide palette of markets from the start may give you the flexibility you need to design and construct your portfolio.

Carefully consider the investment objectives, risks, charges and expenses before investing. A prospectus, obtained by calling 800-669-3900, contains this and other important information about an investment company. Read carefully before investing.

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ETFs are subject to risk similar to those of their underlying securities, including, but not limited to, market, investment, sector, or industry risks, and those regarding short-selling and margin account maintenance. Some ETFs may involve international risk, currency risk, commodity risk, leverage risk, credit risk, and interest rate risk. Performance may be affected by risks associated with nondiversification, including investments in specific countries or sectors. Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small-capitalization securities, and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Unlike mutual funds, shares of ETFs are not individually redeemable directly with the ETF. Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV).

Information provided by TD Ameritrade, including without limitation that related to the ETF Market Center and commission-free ETFs, is for general educational and informational purposes only and should not be considered a recommendation or investment advice. 

ETFs purchased commission-free that are available on the TD Ameritrade ETF Market Center are available generally without commissions when placed online in a TD Ameritrade account. Other fees may apply for trade orders placed through a broker or by automated phone. 

Particular commission-free ETFs may not be appropriate investments for all investors, and there may be other ETFs or investment options available at TD Ameritrade that are more suitable. 

Short-Term Trading Fee (Holding Period for 30 Days). ETFs available commission-free that participate in the ETF Market Center may be subject to a holding period that commences with any purchase and extends through the following THIRTY (30) calendar days.  An account owner must hold all shares of an ETF position purchased for a minimum of THIRTY (30) calendar days without selling to avoid a short–term trading fee where applicable.  There is no limit to the number of purchases that can be effected in the holding period. Any order to sell within THIRTY (30) calendar days of last purchase (LIFO – Last In, First Out) will cause an account owner's account to be assessed a short-term trading fee of $13.90 where applicable. For the purposes of calculation the day of purchase is considered Day 0. Day 1 begins the day after the date of purchase.  The short-term trading fee may be applicable to each purchase of each ETF where such ETF is sold during the holding period. The short-term trading fee may be more than applicable standard commissions on purchases and sells of ETFs that are not commission-free.

Information provided by TD Ameritrade, including without limitation that related to the ETF Market Center and commission-free ETFs, is for general educational and informational purposes only and should not be considered a recommendation or investment advice. 

TD Ameritrade receives remuneration from ETFs that participate in the commission-free ETF program for shareholder, administrative and/or other services.

No Margin for 30 Days. Certain ETFs purchased commission free that are available on the TD Ameritrade ETF Market Center will not be immediately marginable at TD Ameritrade through the first 30 days from settlement. For the purposes of calculation the day of settlement is considered Day 1.

*Advisory services are provided by TD Ameritrade Investment Management, LLC (“TD Ameritrade Investment Management”), a registered investment advisor. Brokerage services provided by TD Ameritrade, Inc. TD Ameritrade Investment Management provides discretionary advisory services for a fee. Risks applicable to any portfolio are those associated with its underlying securities. For more information, please see the Disclosure Brochure (Form ADV Part 2A).

Neither Morningstar Investment Management nor Morningstar, Inc. is affiliated with TD Ameritrade and its affiliates. Morningstar, the Morningstar logo, Morningstar.com, and Morningstar Tools are either trademarks or service marks of Morningstar, Inc.

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Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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