* Highly
Recommended *
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"Just
as a cautious businessman avoids investing all his capital
in one concern, so wisdom would probably admonish us also
not to anticipate all our happiness from one quarter alone."
-
Sigmund Freud
Add
Diversity and Flexibility to Your Portfolio With ETFs
By
Andrew Gordon
Perhaps
- like me - you're not a natural joiner. For instance, I don't
usually go for travel tours. Although ... there was that time
in '92 that I joined a one-day tour of the Acropolis. And then
the following summer, I took the kids on a whale watch off
the coast of Montauk with a group of gawkers.
The
nice thing about organized tours is that when you've read the
brochure, you know exactly what to expect.
For
me, that's also the problem.
I
prefer the unexpected - gaining insights about some inscrutable
culture on my own ... hearing the local lore from the barber
whose shop I stumbled upon - not some canned version from a
tour guide.
I
used to feel the same way about investing. I didn't want an
advisor giving me an off-the-shelf asset allocation package
for someone my age and income level. Neither was I interested
in mutual funds, choosing instead the freedom to root around
in the stock market and discover hidden gems.
That's
just what I did 20-odd years ago ... and I quickly learned
that the thrill of investing on your own carries a hefty price.
Within a year, I'd lost most of my money.
So
I put what I had left into conservative mutual funds. And I
began to study the market.
For
a supposedly safe investment vehicle, it was crazy how much
my mutual fund returns swung from year to year. I'd get good
returns from a fund for a year or two (though I was once in
a value fund that did well for five years) ... but it seemed
that for every good year, there was a bad year. And for every
great year, there was an ugly year.
It
wasn't my imagination. Virtually every recent study has shown
that after fees and taxes, mutual funds don't even keep up
with the rate of inflation.
So
instead of continuing to follow the Wall Street mantra to just
sit on my mutual funds, I started to keep a daily vigil. And
at the first sign of weakness in a fund, I got out and put
my money into a different one.
I
got pretty good at squeezing as much gains as possible from
mutual funds ... despite their shortcomings. And though I didn't
know it at the time, I was practicing an early form of ETF
investing.
What
are ETFs?
They're "exchange-traded
funds." Like mutual funds, they track a basket of stocks
... only they track them by mimicking the composition of the
established index those stocks are in.
The
first ETFs, which appeared about 10 years ago, tracked the
broad indices - like the S&P 500 and the Nasdaq. So, for
example, the price movements of the S&P 500 became the
same price movements of the SPY ETF which followed it.
ETFs
run more or less on automatic. They don't require active management,
so their fees are much cheaper than those of mutual funds.
A big plus.
And
you can get in and out of them any time you like. Another big
plus.
Are
ETFs just slightly better-looking versions of mutual funds
- or can they really benefit your portfolio?
You
bet they can.
ETFs
Can Make Your Number One Nightmare Go Away
As
I said, I used to prefer the thrill of the unexpected when
it comes to investing. But not anymore. I hate surprises.
It's
like getting presents from my wife.
She's
pretty reliable ... but not entirely. I can expect a great
gift from her 19 out of 20 times. That 20th time is the surprise
- the ugly surprise - that wipes out the memories of the other
19.
It's
the same darn thing with investments. One ugly surprise can
turn a good year into a terrible one in the blink of an eye.
And who needs that? So I'm very careful to invest only in those
companies that can pretty reliably live up to my expectations.
They
only have to do what they are fully capable of doing for their
share price to rise. I'm not counting on them to exceed expectations.
As I said, I want reliability. Which means I don't want ANY
surprises.
Of
course, bad surprises happen to even the most careful investor.
And when they do, your portfolio takes an unexpected hit.
A
strike somewhere ... an accounting scandal somewhere else.
Heck, last year I went from being 60 percent up on Six Flags
to 30 percent down - within a week - on a surprise announcement
that the company might have trouble paying a loan that was
coming due. Unless you were privy to illegal insider information,
there was no way you could have seen this coming.
Don't
get me wrong. I've also had "good" surprises. It's
always nice when they happen. But - as I said - I don't need them
to happen. I just want my investments to live up to expectations.
That's
where ETFs come in. They give you all kinds of options to significantly
shore up the weaknesses of your portfolio and alleviate the "when
bad things happen to good companies" syndrome.
Start by converting the stocks in your portfolio that lag behind
the sector they're in, are volatile, or just finished a nice
climb and are now either flattening or turning around.
If
you still really like the sector a stock is in, convert to
a same-sector ETF. ETFs cover a multitude of broad and narrow
sectors, like nanotechnology, clean energy, ultra-small companies,
semiconductors, entertainment, medical devices, energy exploration
... just to name a few. But if the sector is slowing down,
choose a more up-and-coming sector like natural resources,
energy, commodities, or a strong country.
If
you want to play it really safe, buy ETFs in sectors that stand
up well to either recession or inflation. TIPS (Treasury inflation-protected
securities), short-term bonds, consumer staples, the falling
dollar (yes, you can invest in a falling-dollar ETF), and dividend-paying
stocks are all great stalwarts against tough times.
Get
Better Returns Without Having to Pick Winning Stocks
ETFs
can help your portfolio in other ways, too
If
you have both blue-chip and dividend-paying mutual funds, you're
over-invested in banks and finance companies. Not good if the
economy slows down too much or interest rates go too high.
Take
some of your money out of those positions and invest it in
a real estate investment trust (REIT) ETF. Look for one like
the StreetTracks Dow Jones Wilshire REIT, which tracks REITS
that get revenue from rents.
That's
much easier than figuring out exactly which REIT to invest
in, isn't it?
Or
maybe you need to diversify overseas to counterbalance your
domestic investments. ETFs - unlike mutual funds - allow you
to pick your country. India, China, Malaysia, Brazil, Germany
- they all have one or more ETFs that follow them. I like the
Austria ETF because it provides exposure to the growing economies
of central Europe. (There's no way, other than through an ETF,
to make a play in central Europe.)
Or
you can get safety and diversity by investing in foreign dividend-paying
companies through the Powershares International ETF ... and
make a currency play (against the dollar) at the same time.
There
are over 200 ETFs to choose from - including 50 that were added
in just the past 12 months.
When
it comes to choice, flexibility, and cost, ETFs leave mutual
funds in the dust.
Unlike
mutual funds, choosing an ETF isn't about finding one with
a great manager or looking at its 5- to 10-year track record.
You want to make sure the ETF is not top-heavy - meaning its
three biggest company holdings should not make up more than
25 percent of its overall holdings. And, of course, you should
love the sector or country ... not because your golfing buddy
mentioned it, but because your own research and knowledge of
the market has convinced you it is coming on strong.
You
can ride ETFs for the short, medium, or long term - whatever
your investment style is. But remember - the market is changeable.
Yes, ETFs are a lot less volatile and risky than individual
stocks, but it still pays to check how your chosen sectors
and countries are doing once or twice a week. And, as with
any investment, you should always set - and act on - your stop-loss
positions.
If
you pay attention to these few simple rules, ETFs will deliver
the upside that mutual funds can only dream of. Safely and
reliably. With no surprises.
[Ed
Note: If you'd like to be one of the first to see how
Andrew tracks a part of the market that is gathering steam
for explosive growth, send an e-mail to ETFAdvantage@etrfeedback.com.
We'll send you information about this new service as soon
as it's available.]
* Highly
Recommended *
A
Life-Changing Opportunity This October
Your
three-day mission: Reclaim your personal liberty ... declare
your self-reliance ... and seize financial independence forever.
This
October, we're going to show an eager group of smart ETR readers
how to build an Information Marketing business that can generate
millions of dollars in sales every year.
But
here's a "Friendly Reminder": Over 180 future Internet
entrepreneurs are now enrolled. There is only room at the conference
hotel for a few more.
If
you are ready to enjoy the personal freedom, liberty, and financial
independence that your own online business can bring, the
time to register is now.
I'm
looking forward to personally shaking your hand in Delray Beach
this October!
-
Will Bonner
Making
Small Changes
By
Jon Herring
I
often get e-mails from ETR readers asking if it is really important
to "sweat the small stuff" when it comes to health.
I'm talking about eating mostly organic food; avoiding pesticides;
drinking non-fluoridated, non-chlorinated water; and staying
away from processed foods, sugar, and starches.
The
answer is YES! If you value your health, it is very important
to "sweat the small stuff."
By
far, the leading causes of death in the U.S. are from diseases
- like heart disease, cancer, diabetes, and Alzheimer's - that
in many cases result from poor lifestyle decisions. And the
incidence of these diseases has been growing. In fact, in its
World Cancer Report, the World Health Organization (WHO) reported
that rates of cancer could increase by 50 percent in the next
15 years. That's a chilling statistic. Fortunately, the organization
indicates that at least one-third of those cases can be prevented
if Americans make healthy choices.
Small
changes can make a big difference, and it doesn't require a
lot of sacrifice. A few extra dollars a month for fresh, nutritious
food and 20 or 30 minutes a day of exercise is a small price
to pay in exchange for a long, active, and disease-free life.
Notes
from Michael Masterson's Journal: Good Advice From a Professional
Speaker
I
had a conversation with BI last weekend about public speaking.
He's had a lot of experience - and he gave me some good advice. "Show,
don't tell," he said. "Give the audience stories
that illustrate problems you've faced and how you solved them
- including stories about running into brick walls."
A
good idea - and interesting that "Show, don't tell" is
a principle of effective writing as well as speaking.
The
next time I stand up in front of a crowd will be at this year's Info
Marketing Bootcamp. Before I do, I'm going
to work on weaving in some personal stories about myself and
people I know: Here is the character. Here is the problem.
Here is how he/she tried to solve it. Here is how he/she ultimately
prevailed.
[Ed.
Note: If you're at this year's Bootcamp,
you'll have a chance to "rate" all the presenters.
Let's see how Michael does ...]
Worth
Quoting: Bruce Buffer on Making Deals
"I'd
have to say a lot of my success is because of my background
in telemarketing. I'm not a telemarketer per se now, but so
much of my business involves calling people up - sometimes
strangers - and making deals. In fact, my day is not complete
until I close a deal. I live for the excitement.
I
can cover more ground in six hours than three people without
my experience can cover in one day. Cold calls are essential
to any sales business ... and we are in a sales business. Rejection
doesn't bother me for more than a second - and then I'm on
to the next call. I figure the no's I get only bring me closer
to a yes."
[Ed.
Note: Bruce Buffer is just one of the millionaire wealth builders
Michael Masterson profiles in his soon-to-be-released book Seven
Years to Seven Figures: The Fast Track Plan to Becoming a Millionaire, Copyright
(c) 2006 by Michael Masterson. This excerpt is reprinted with
permission of John Wiley & Sons, Inc. We'll let you know
as soon as the book is available.]
* Highly
Recommended *
Every
Now And Then A Mysterious Package Would Arrive
I
was just an ordinary secretary struggling through life barely
existing from paycheck to paycheck.
My
husband Dave, (bless him) was desperate to get us back on our
feet, so he started trying out all the "business opportunities" you
get through the mail.
I
grabbed one at random. I watched the DVD. I took notes and
followed the instructions just like it said and waited for
the results. It seemed simple enough and it took me less than
an hour!
Then
one day, I got an email saying there was some money I was owed.
It was $3,012 and change! The money was real and ALL MINE!
Read
about Vicki's good fortune...
--
Patrick Coffey
Word
to the Wise: Fatuous
Something
that's "fatuous" (FACH-oo-us) - from the Latin for "silly" -
is foolish or inane.
Example
(as used by Michael
Palin in Hemingway's Chair): "No
enquiry, however fatuous or ill informed, failed to receive
his full attention, nor was any irrelevant personal information
treated as less than engrossing."
