ETF Portfolio: How to Build It in 2025 (And Why You Should)

ETFs are among the most popular investment tools due to their efficiency and low costs. But how to build an ETF portfolio in 2025? In this guide you will discover why to invest in ETFs, what are the best tools available and how to structure a well-balanced portfolio to maximize returns and reduce risks.

ETFs are among the most popular investment tools in recent years, and 2025 will be no exception. Thanks to their simplicity, low costs and the immediate diversification they offer, ETFs have become the preferred choice of many investors, from beginners to the most experienced.

But how do you build a truly effective ETF portfolio? How many ETFs do you need to balance risk and return? And above all, what are the best ETFs to focus on in 2025?

This guide explains why to build an ETF portfolio and how to do it effectively, providing practical advice on selecting tools, composing a balanced portfolio and strategies to optimize returns.

Whether the goal is to grow capital, generate passive income or protect against inflation, the article will offer clear answers and practical advice for building a solid and effective ETF portfolio.

Why create an ETF portfolio in 2025?

ETFs (Exchange Traded Funds) are investment instruments that replicate the performance of an index, a sector or a basket of assets. Unlike mutual funds, they are traded on the stock exchange like shares, offering greater flexibility and lower costs because they allow you to invest in an entire market (equity, bond or thematic) with a single transaction, without the need to select individual securities.

But the advantages of ETFs over mutual funds do not end there. Many investors prefer ETFs for their lower costs: the management fees (TER) are in fact lower than those of active funds. Furthermore, ETFs offer greater transparency because the portfolio composition is always visible and up-to-date and, thanks to their high liquidity, they can be bought and sold at any time during stock exchange hours.

In recent years, the growth of online investment platforms and zero commission brokers has made access to ETFs even easier, attracting both institutional investors and private savers.

But in 2025, there is an additional reason to focus on ETFs. With interest rates likely to remain high for longer and an uncertain economic environment, investors are reviewing their strategies. After years of rallies, many technology stocks have reached high valuations and are more exposed to earnings disappointments. This is favoring a rotation of capital towards more defensive sectors and value stocks, characterized by solid balance sheets and lower volatility. A well-diversified ETF portfolio allows you to adapt to this scenario, balancing risk and return efficiently.

How to build an ETF portfolio from scratch. Complete Guide

To build an effective ETF portfolio from scratch, you must first define the objectives of the investment. Those aiming for capital growth will favor equity ETFs, while those looking for a constant income will give more space to bond ETFs or those that distribute dividends. If, on the other hand, the priority is to protect assets, a more defensive strategy with ETFs on safe haven assets such as gold or on quality bonds may be more suitable.

Once the objective has been defined, it is essential to establish the risk profile. A conservative investor will maintain a greater portion in bonds and stable assets, while a balanced profile will seek a balanced mix of stocks and bonds. Those with a long-term horizon and a greater propensity for risk can focus on more aggressive ETFs, exposing themselves more to the stock market.

We then move on to the asset allocation, the heart of the strategy, deciding how to divide the capital between stocks, bonds, raw materials or specific sectors. Diversification, in fact, is the key to balancing returns over time.

To build a solid ETF portfolio that is in line with your financial goals, you also need to consider the efficiency of the ETFs you choose, evaluating factors such as the TER (Total Expense Ratio), which indicates management fees, the tracking error (the ability of the ETF to correctly follow the reference index) and the liquidity, which determines how easily you can buy or sell the ETF without affecting its price too much.

How many ETFs should you have in your portfolio? The ideal strategy

The ideal number of ETFs to build a balanced portfolio varies from 5 to 10 ETFs but you can build a sufficiently diversified portfolio even with just two ETFs with different investment objectives. Too many ETFs risk diluting returns, while too few could expose you too much to a single sector or asset. The ideal is to find a number that allows for good diversification without overly complicating portfolio management.

An effective approach to avoid overlaps between similar ETFs is to select funds that cover different sectors or assets, avoiding purchasing ETFs that replicate the same index or sector.

A strategy often used is the Core-Satellite, in which the main part (core) of the portfolio is made up of widely diversified ETFs, such as those that replicate global or broad-market indices, while the satellite part includes thematic or sector ETFs, aimed at specific growth opportunities. This combination allows for a stable and well-diversified base, with a part invested in promising, but riskier, market niches.

ETF portfolio examples

There are different types of ETF portfolios, each suited to different needs and levels of experience.

A ETF portfolio for beginners consists of a few ETFs that cover different sectors of the economy or different international markets, so as to obtain good diversification without complications. This portfolio aims for stability and capital protection.

A balanced ETF portfolio seeks to combine growth and stability. Here, stock or sector ETFs are mixed with bond ETFs. This type of portfolio reduces risk by diversifying between more volatile and more stable assets and is perfect for those who want a mix of return and security.

An aggressive ETF portfolio is designed for those with a greater tolerance for risk, with a long time horizon. In this case, ETFs are chosen that focus on sectors with strong growth, such as technology, renewable energy or emerging markets. The goal is to maximize the return, accepting greater volatility.

Finally, the Lazy Portfolio is a long-term strategy, based on a careful diversification of ETFs that replicate the performance of indices or large market segments with exposure to all essential macroeconomic sectors. It is built with a limited number of low-cost instruments that are rarely rebalanced.

The best ETFs for 2025: which ones to choose and why

The choice of the best ETFs for 2025 starts with a preliminary analysis of the risk profile of your investment objectives. As already mentioned, a well-constructed portfolio must guarantee diversification, low costs and a good balance between growth and stability, but it must also be able to seize the opportunities emerging from new market trends.

Global equity ETFs
For those who want to invest on a global scale, global equity ETFs offer broad geographic and sector exposure. The Vanguard Total World Stock ETF (VT) and the iShares MSCI ACWI ETF (ACWI) track a mix of developed and emerging markets, while the SPDR MSCI World ETF (WLD) focuses on advanced economies. Two ETFs that are great for capturing the growth of emerging economies are the iShares MSCI Emerging Markets (EEM) and the Vanguard FTSE Emerging Markets (VWO).

Emerging Trends Sector ETFs
Artificial intelligence, semiconductors and renewable energy have performed exceptionally well over the past two years and could continue to grow over the long term. But in the short term, ETFs holding these stocks are likely to experience increased volatility. For example, the Invesco QQQ (QQQ), which tracks the Nasdaq 100 and includes tech giants such as Apple, Microsoft and Nvidia, the ARK Innovation ETF (ARKK), which invests in AI, biotechnology and fintech, or the iShares Global Clean Energy ETF (ICLN) and the Invesco Solar ETF (TAN), which offer exposure to renewable energy, could slow their run in 2025.

Bond ETFs
With interest rates still uncertain, Bond ETFs allow you to balance your portfolio with more stable returns. The iShares Core U.S. Aggregate Bond ETF (AGG) and the Vanguard Total Bond Market ETF (BND) offer diversification in fixed income.

Strategies for Optimizing an ETF Portfolio

Managing an ETF portfolio effectively means monitoring it and making strategic adjustments. Periodic rebalancing, to be done at least once or twice a year, helps maintain the right balance between stocks and bonds. If an ETF rises too much relative to other assets, the risk of the portfolio increases, so it is useful to sell a portion of the rising ETF and reinvest in the underperforming ones to rebalance everything.

Leveraged and inverse ETFs can be useful for optimizing the portfolio, but they should be used with caution. Leveraged ETFs, such as the ProShares Ultra S&P500 (SSO), amplify gains (and losses), so they are only suitable for short-term trading. Inverse ETFs, such as the ProShares Short S&P500 (SH), rise when the market falls and can be used to protect the portfolio during downturns.

To reduce volatility, defensive ETFs can be included, such as the SPDR Gold Shares (GLD), which is linked to gold, or the Vanguard Consumer Staples ETF (VDC), which invests in consumer staples. These instruments tend to hold up better in times of uncertainty.

Finally, those investing in foreign markets must consider exchange rate risk. Currency-hedged ETFs, such as the iShares MSCI Japan Hedged ETF (HEWJ), protect against fluctuations in the dollar, euro or yen, making investments more predictable. This option is useful when currencies are very unstable.

The risks of investing in ETFs

Investing in ETFs to build a diversified portfolio with low costs is not without risks. Market volatility can in fact influence the value of ETFs, especially equity ones, exposing investors to unexpected fluctuations. Another aspect to consider is the tracking error, or the difference between the performance of the ETF and that of the reference index, caused by management costs or inefficiencies in replication. In addition, some ETFs hide costs that are not very visible, such as bid-ask spreads and rebalancing fees. One way to reduce these risks is to choose liquid ETFs: ETFs with low trading volumes can have wider spreads and be difficult to sell quickly without impacting the price.

Certain types of ETFs can present additional pitfalls: for example, synthetic ETFs, which replicate indices through derivatives rather than directly holding the assets, add an additional layer of counterparty risk. Finally, geopolitical and regulatory factors can impact the value of ETFs, especially those in emerging markets or regulated sectors such as technology and energy.

Original article published on Money.it Italy. Original title: Portafoglio ETF, come costruirlo nel 2025 (e perché farlo)