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Why ETF Investors Need to Do Their Homework
Tweet Share on Facebook February 11, 2011 CommentThis week I spoke at the 4th annual Inside ETFs Conference in Hollywood, Fla. It was an extremely well-attended event with over 900 attendees, live broadcasts from CNBC, and information booths from every major ETF vendor.
I'm a huge fan of exchange-traded funds—I've been managing portfolios composed entirely of ETFs for almost 10 years. I think the ever-increasing size of the ETF market, and the number of new issuances in registration, proves ETFs are here not only to stay, but to dominate. Actively managing passive investments is a fantastic way to construct globally diversified portfolios that are cost-effective and tax-efficient.
However, for all their good and effectiveness, ETFs are fraught with peril for the uninformed investor and adviser. Here are a few reasons why:
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Why Early Retirement May Not Be Your Best Option
Tweet Share on Facebook February 10, 2011 Comment (1)The Great Recession has caused many to rethink their retirement plans. According to TIAA-CREF, the economic downturn has caused 37 percent of Americans to put off retirement. With nest eggs depleted, the prospect of dropping the 9-to-5 grind in favor of leisure and the glory of the golden years is now a distant dream.
Recent research, however, reveals that early retirement may not be the panacea many have hoped. A slew of negative health effects has been correlated to early retirement starting with memory decline. And, unfortunately, mental exercises don't seem to help. Lisa Berkman at Harvard's Center for Population and Development states, "If you do crosswords or Sudoku, you get better at crosswords and Sudoku. You don't get better at cognitive behavior in life."
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5 Reasons Investors Fail to Plan
Tweet Share on Facebook February 9, 2011 Comment (1)We've all heard the old line: "People don't plan to fail; they just fail to plan." It's important to recognize that there are specific reasons people often fail to plan, and knowing these reasons is half the battle on the journey to success.
Procrastination. The main reason people often fail to accomplish their goals is due to procrastination—putting off what can be done today until tomorrow. The problem is "tomorrow" never comes. Defeating procrastination is all about setting deadlines. Instead of saying, "I am going to open an IRA," it's better to say, "I am going to open an IRA by the end of the month." When you have a deadline, you can accomplish goals more easily.
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4 Hidden Costs in Investing
Tweet Share on Facebook February 8, 2011 Comment (3)Like most things in life, when it comes to your investments, you get what you pay for. In other words, if an investment costs less, it might not be the best product you can buy. When you go grocery shopping, do you try to save money by buying the store brand of toaster pastries that costs less instead of Pop-Tarts? They look the same on the box, but we all know Pop-Tarts taste better.
Don’t choose an investment just because it costs less, but make sure you’re not paying too much either. It may seem overwhelming to watch for costs when you’re choosing among the thousands of investments available, but it’s not that difficult. You just have to know what the different costs are.
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Why the S&P 500 Is Still a Bargain
Tweet Share on Facebook February 4, 2011 CommentJ.P. Morgan Asset Management publishes some great market research at the end of every quarter called the "Guide to the Markets." It is chock-full of good data, but when reading the most recent issue, one page really stood out to me. The page asked a simple question: Is the S&P 500 over-bought?
No. At least not according to some data found in the guide. Here's why:
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ETF Basics: Invest Globally, but Cautiously
Tweet Share on Facebook February 3, 2011 CommentNot all foreign stock investments are created equal. In a prior article, we wrote about owning stocks in companies based in emerging markets (Brazil, Russia, India, China) and the different types of risks and returns one can expect. The exciting growth in these countries also comes with a fair amount of risk, including governments with onerous tax rates, state-imposed price controls, outdated securities laws, corruption, or risk of wars and violence.
Egypt brings these risks home. If you want to invest in the Egyptian stock market, you can purchase shares of an exchange-traded fund (ETF) called the Market Vectors Egypt Index ETF (symbol EGPT), which holds all the important stocks in Egypt. When protests broke out last week, the markets decided that all of the largest companies in Egypt were worth 25 percent less than they were a day before, and EGPT fell by that amount!
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Why You Should Buy Consumer Staples Stocks
Tweet Share on Facebook February 2, 2011 CommentSodas, macaroni and cheese, cigarettes, gum, salt, ketchup, and medicine are all things we use regardless of which direction the stock market is trending. These items are all part of the consumer staple market sector. They also can and should play a part in your portfolio in 2011.
Here are three reasons to consider consumer staples for your portfolio:
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Why Boring is Good for Investors
Tweet Share on Facebook February 1, 2011 Comment (1)When reviewing your portfolio, you might think: All I own are mutual funds. Maybe I should buy that new exchange-traded fund the experts on TV are bragging about. Perhaps I should add to my commodities holdings since gold, silver, and other metals were so hot last year.
Here's my advice to anyone who thinks they need to spice up their investments: Don't do it. Mutual funds are the most tried-and‑true investments around. Yes, they're boring. Mutual funds usually don't have a blowout quarter in earnings or announce share buybacks or two‑for‑one stock splits. There's just not a lot of buzz surrounding them. If what you're after is entertainment, go gambling in Las Vegas. But if you want to accumulate money for your retirement and other goals, mutual funds are the way to go.
[See top-rated funds by category ranked by U.S. News Score.]
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Get to Know Your Financial Advisor
Tweet Share on Facebook January 28, 2011 Comment (1)Today I want to highlight the importance of personal relationships, specifically the one between you and your financial advisor. It's a serious relationship, but it is grounded in the most basic foundation: we are all human. As humans we are all shaped by, and products of, the cultures we are immersed in throughout life. I was recently reminded of this by a personal experience I'd like to share. It requires a little bit of background on me.
Upon graduating from college, I became an artillery officer in the U.S. Marine Corps and served nearly seven years on active duty, seeing both the world and a little bit of combat. I was initiated into a culture grounded in more than 235 years of tradition. There was, appropriately, very little room for individuality. The culture of uniformity helped me develop an eye for detail and order. To this day I can look at a service member in uniform and determine if something is out of alignment by an eighth of an inch.
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Why You Should Still Buy Bonds
Tweet Share on Facebook January 27, 2011 CommentAs an investment advisor, it seems like I have a daily conversation with investors who are running for the exit with their bond portfolios. The prognosticators have spoken, and apparently the news has finally leaked out to the masses: Inflation is either here or just around the corner, and with it the great and terrible day of reckoning for bonds. Yes, a dot-com-sized bubble has inflated the bond market before our very eyes, leaving only the most foolish among us still holding on to our bonds. When the bond market finally craters, it will be the stubborn few taking the punishment—pigs, as they say, deserving slaughter.
The consensus for fleeing bonds has become more powerful with each passing week. The first notable warning shot came from Warren Buffett at his annual Berkshire Hathaway meeting when he predicted the future demise of the bond market. Soon after, the Vanguard Group announced worries about bond instability. Journalists, economists, and wealth managers have joined in chorus proclaiming disaster in the bond market. With such a dire consensus, why would any investor still buy bonds?
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