How to Use ETFs to Invest in Stocks, Bonds, and Alternatives in 2024

As we head into the new year, one trend in the investment landscape that has seen significant changes in recent years seems unshakeable: exchange-traded funds.

The continued popularity of ETFs is no accident. Historically, equity portfolios and asset management were very much like exclusive clubs, as investing in different assets, such as stocks, commodities or bonds, required solid capital.

However, ETFs, which trade on exchanges just like individual stocks, have opened the door to countless opportunities for countless investors who typically remain on the fringes of profitable asset management.

Besides affordability, ETFs have many other advantages. On the one hand, diversification is a cornerstone of sound investment strategies, and ETFs naturally lend themselves to this principle.

ETFs also offer price updates throughout the trading day, allowing people to make informed decisions based on current market conditions. Finally, the liquidity and transparency of ETFs are two more feathers in their cap, allowing people to buy or sell them throughout the trading day. This offers investors the flexibility they need to react to market movements.

A diverse spectrum of ETFs covering different sectors, regions and strategies provides investors with ample opportunities to customize investments according to their financial goals and risk levels. As we move into 2024, the potential for growth and innovation in the ETF space is significant, presenting exciting opportunities for portfolio diversification and capitalizing on the benefits of ETFs.

Let’s start simple: Growth ETFs.

As a fund that focuses on companies that are expected to grow at an above-average rate relative to others in the market, growth ETFs provide multiple benefits to investors. Number one is the potential for higher returns.

Second, many growth ETFs are invested in sectors such as technology, healthcare and renewable energy, which are the drivers of innovation. Investing in these sectors can provide exposure to emerging trends and technologies.

Growth ETFs are great for portfolio diversification. By including them, people can balance other investments that may have different risk and return characteristics, such as value stocks or bonds, and improve the overall performance of their portfolio.

Fixed income ETFs are attracting significant interest from investors, with inflows expected to continue the trend from 2023 and into 2024.

Fixed income ETFs offer an effective way to diversify portfolios. They provide exposure to different types of bonds, such as corporate or municipal bonds, helping to reduce overall portfolio risk. They also offer the flexibility to be traded on stock exchanges, which allows for liquidity and allows investors to easily buy or sell shares.

Also, with expectations that the Federal Reserve may be nearing the end of its rate hike cycle, it may be a great time to consider fixed income ETFs, especially for those with a cash overweight.

Alternative ETFs are ETFs that provide exposure to alternative asset classes or investment strategies, ranging from hedge fund tactics to antiques and collectibles. They offer unique opportunities for diversification by exposing people to asset classes that may have low correlation with traditional investments such as stocks and bonds. In this way, they can help reduce the overall risk of the portfolio.

In addition, they typically have lower expense ratios than actively managed alternatives such as private equity funds. This cost efficiency can lead to improved net returns for investors.

As with any investment security, it’s important to thoroughly research and understand alternative ETFs before considering them for your profile, but it’s hard to deny their potential to protect a portfolio from market volatility while ensuring investors remain on your way to prosperity.

From high returns and exposure to cutting-edge sectors to stability and robust diversification, the potential for ETFs is vast—and the field is set to continue to evolve, presenting a wealth of brand new opportunities. As we welcome the coming year, investors will greatly benefit from harnessing the power of ETFs to meet—even exceed—their financial goals.

After all, a well-diversified strategy is the key to successfully managing risk and achieving long-term financial success.

— Christopher J. Day, founder of Days Global Advisors, a Houston-based advisory firm that offers wealth management and private portfolio services.