Strategies

For example, an investor may have little or no exposure to certain asset classes, market segments or sectors. Wholesale rebalancing to diversify the portfolio or transitioning into a model portfolio may not be possible because of trading restrictions or other issues.

In these cases, ETFs can be used to fill gaps until the portfolio can be rebalanced to the desired allocation. In the illustration, a value ETF fills a gap and increases the diversification of a portfolio that's heavily weighted toward growth stocks.

_{Source: Vanguard. This hypothetical investment or portfolio strategy is shown for illustrative purposes only and shall not be construed as a recommendation to buy or sell any security or financial instrument, or an offer or recommendation to participate in any particular trading or investment strategy.}

Point to consider

Greater diversification introduces the possibility of underperformance relative to a concentrated portfolio, but it also means less risk.