2 weeks Balancing my portfolio like EFT or an index fund? Reddit        

Lets ignore my non-equities assets. I have cash and bonds and even physical gold. I am comfortable with my exposure to those asset classes. For this discussion, I’m only interested in how to allocate inside the equities portion of my portfolio.

I understand we want exposure to Large, mid, and small cap stocks. I know a lot of index funds use market capitalization to determine how much a given stock will represent in their portfolio. I get the math… but, it doesn’t feel right to me. It doesn’t look at things like P/E ratio, price-to-book, growth, dividend yield. Is there any indexing strategies that orientated around those types of metrics?

I also know you want exposure to domestic and foreign stocks. But, how do they determine the percentage? To me, it makes sense to balance according to the size of their economies (or something similar). For instance, the US should be a bigger portion of your portfolio than Spain or Switzerland regardless of where you live. Does that feel right? More interestingly, though, is the impact of monetary policies. For instance, I feel we are going to see some currencies gain value vs others (and vice versa) as a result of the past few years. Is there any way to quantify something like that as it relates to my portfolio?

Finally, the part I find most complex: sector allocation! I don’t even think the pros have this figured out yet. Either they focus on just one sector OR they include all the sectors! What strategies do you use to ensure your portfolio is sufficiently diversified in each sector. Or are you comfortable ignoring sectors you aren’t familiar with?

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