Trying To Understand Expected Returns For Exchange Traded Funds
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In recent years exchange traded funds (ETF’s) have become the talk of the town. I have recently ventured into the world of ETF’s and have been quite impressed with them.
An ETF is similar to a mutual fund with the exception that it is traded like a stock. The nice thing about ETF’s compared to mutual funds is the initial cost. Most quality mutual funds will require a $3,000.00 initial deposit; while ETF’s can be started for as little as $500.00. ETF’s usually track a specific sector or index, and new ones are being created all the time.
The advantages of ETF’s are their cost, liquidity, and the ability to give investors instant diversification. It is much easier to buy an ETF than to buy a basket of stocks on your own.
Some argue that the disadvantage of ETF’s is that they are relatively new and do not have a long enough track record. However, I think ETF’s have been around long enough now that investors who take their time can build a very solid portfolio consisting of ETF’s.
If I was given the chance to start over again, I would definitely purchase ETF’s before I started to invest in individual stocks. Investing in individual stocks for a person that is completely new to the market is simply not the way to go in my opinion. There is so much to know and learn about investing in individual stocks that make it almost impossible for a new investor to be successful. Therefore, I think the best advice for a person new to the markets is definitely to start with ETF’s or at least a mutual fund.
Remember there are sharks out there on Wall Street looking to take the money out of the hands of the small individual investor. However, if you keep your investment portfolio well-diversified it is harder for them to manipulate the markets as a whole as opposed to one individual stock.
Watch the video related to exchange traded funds
www.moneyshow.com Morningstar’s Jeffrey Ptak explains how his firm determines expected returns for ETFs. See more @moneyshow.com
Help answer the question about exchange traded funds
Tags: etfs, exchange, Exchange Traded Funds, funds, investing, mutual funds, stocks, traded
May 15th, 2010 at 10:21 pm
Yes, but the materiality rules apply. So it means you won't be able to audit Exxon Mobil because that stock is more than 5% of some ETFs.
May 15th, 2010 at 11:16 pm
ETFs are awesome. Really low internal expenses, less than 1% almost always. You can pick a sector, like healthcare, or international (EFA is a good one) or just mimic an index such as the S&P 500 (IVV). ETFs are traded like stocks, that is, you can set a limit order to buy and a sell stop to protect your downside or lock in your profits. This is not possible with a mutual fund. Mutual funds are valued at the end of each market day, and when you buy or sell, the value is calculated at the end of that day. ETFs are superior in every way and are traded in realtime, again, like a stock. Mutual funds are legally required not to be comprised of more than 5% of any one stock. This makes the mf manager (to whom you pay a hefty management fee) forced to sell the winners in their portfolio.
May 16th, 2010 at 12:10 am
China or better yet CWI or VEU (which I own)
May 16th, 2010 at 5:20 pm
First I think you are very smart to be thinking of investing in gold. The easy way is to buy Gold stock like GLD with say at e.g. TD Amertrade. Even as high as gold is today I think it is under valued if you compare to the weak dollar and inflation.
For centuries, buying gold has been recognized as one of the best ways to preserve one's wealth and purchasing power. Gold is a unique investment, one that has served mankind well for thousands of years. From the times of ancient Egyptians, Greeks and Romans to more modern times, man has been fascinated with the beauty and magic of gold, and with its power to change men's lives.
Gold bullion is real, honest money…and, many say, the best form of money the world has ever known. It is a store of value and a safe haven in times of crisis. Gold is rare, durable and does not wear out in the manner of lesser metals (or paper!) when passed from hand to hand. A small amount, easily carried, can purchase a significant amount of goods and services. It is universally accepted, and can be easily bought and sold around the world.
Today, the beauty of a gold bar lies in its ability to diversify investments, protect wealth and preserve one's purchasing power.
on.
May 16th, 2010 at 10:45 pm
As a professional financial planner, whom you may consider biased because I am paid by fees, I rank the amount of fees you pay, as a determinant of success in investing no higher than #9 on my list.
Thye product you choose: investment funds, stocks or ETF's really is irrelvant to much more important behavioural strategies. Don't spend more than a few minutes deciding on which product to use. Sepnd your time finding that rare financial advisor who can save you thousands of dollars every year in countless other ways, protect your family in case you cannot, put your kids through school, save your marriage and even your life insome cases.
May 17th, 2010 at 9:58 am
Look at your text book, it may hold the clue. If it does not, go to morningstar.com, the school probably has a subscription and look under their ETF tab.
May 19th, 2010 at 5:49 am
VTI – Total Market Index
VB – Small Caps
VEU – International
BIV – Intermediate Term Bond
VTI gets you the entire us market.
VB – us small caps. I added this since VTI tends to be light in the small cap area.
VEU get you international stocks
BIV gets you fixed income exposure. Which in my opinion all portfolio's need.
I would use ETFs, only if you plan on making 1 lump sum contribution. If you plan on DCAing, I would use index funds instead.
May 19th, 2010 at 9:24 am
Exchange Traded Funds are good vehicles as they have low expenses. They are not actively managed and have low expenses. I'm guessing the reason someone would tell you to put money into dividend paying stocks is that paying dividends is a reflection of a Strong balance sheet. In that sense I agree with the recommendation.
I believe you never put your eggs in one basket. I also like to be in a good managed no load fund as opposed to a passively managed funds such as an ETF. For my money I like small cap funds right now. I like RVT which is a closed end fund selling at a 17.6% discount now.
All that said I would never put more than 20% of my money in any fund.
May 19th, 2010 at 9:49 am
With only a few hundred dollars to invest,you can forget futures.
The initial margin on a mini futures gold contract is $2,500 .The initial margin on a normal gold futures contract is $7,600.
Even if you had the $2,500,a $20 short term temporary move in the price of gold against you would wipe you out.
Futures are not very secure.
The only choice you got is Exchange Traded Funds
The problem with futures is that you can get the long term direction correct but the short term reversals will wipe you out completely.You need a lot of capital to withstand these short term reversals.90% of all futures players lose because of this .Stay away from futures.
November 10th, 2011 at 6:26 am
Many hedge funds have a tendency to stray over a period as executives scramble to supply better returns for the stockholders.