In Monday’s Wall Street Journal, there is a great article about how investors can use ETFs outside of their 401k plans to improve their portfolio. Most 401k plans are full of mutual funds that give exposure to stocks and bonds, but few give you access to alternative assets. These assets, such as gold and other commodities, real estate, and foreign currencies, can lower the risk and potentially increase the returns of a portfolio compared to one made up strictly of stocks and bonds.
ETFs can get you direct exposure to alternative assets. Since most 401ks don’t give you this access, every investor should use some of their non-401k investments (and IRA , for example) to invest in this asset class with ETFs. Longer-term, the demand for ETFs will ensure they make their way into everyone’s 401k plan (regardless of whether the mutual fund industry embraces the idea), but for now at least average investors have the tools available through ETFs to compensate for existing 401k plan limitations.
