How do I balance my ETF portfolio?

How do I balance my ETF portfolio?

Balancing an ETF portfolio involves largely the same analytical and decision-making process as other portfolio optimisation exercises that do not involve ETFs. The simplest optimisation process maximizes returns per unit of risk, which is usually defined as standard deviation. A more nuanced exercise can tailor the process to the end investor’s risk and return objectives, in terms of returns, retirement dates or other target dates such as children’s education costs, inflation protection, tax efficiency and multiple other considerations.

This can also depend on the age, risk appetite and other assets of the investor. For instance, if an individual’s largest asset is already residential property in their own country, then investing in an ETF focused on that sector might duplicate that exposure and be too closely correlated with existing assets.
And if an individual already has shares or share options in the company they work for, investing more into the same sector might not add much diversification benefit.

Some investors seek professional advice, which can come from a person or a digital adviser/“roboadviser”.