If you don’t have the time to watch your portfolio closely but also don’t want a financial advisor, you should consider Exchange Traded Funds (ETF). ETFs will allow you to enjoy the markets while fully invested in a conservative, low-cost, buy-and-hold portfolio. They are vastly preferable to investing in mutual funds.
Whether you are a passively conservative, enterprising or speculative investor, Exchange-Traded Funds (ETFs) give you the best of all worlds: the advantages of traditional mutual funds, with much lower fees, plus the liquidity of stocks that are re-priced throughout the day.
With ETF investments, you have a remarkable choice of equity index tracking funds, from the major market index funds to the specialized sector and group index funds.
There are also fixed-income ETFs, which provide all the credit risk diversification and range of maturities you would like in a conservatively managed corporate bond fund.
For the major equity market funds, you can buy funds that cover the S&P 500 (large cap), the Dow 30 (large cap), the Nasdaq 100 (large-cap and mid-cap), S&P 400 (mid-cap), S&P 600 (small cap) and Russell 2000 (small cap). You can also buy the S&P Global 100 (large cap).
Because these funds are exchange traded, you get to use market orders, stop orders, limit orders, short sales and margin buying, if you wish.
You pay a standard broker’s commission to buy them, but if you buy and hold, your annual fee could be less than 0.10 percent, lower than most index mutual funds and substantially lower than the 1.40 percent fees of the average actively-managed stock fund plus sales commission (load) if you buy from an agent.
By investing an “untouchable” 90 percent of your assets in ETFs and the remaining 10 percent in special situations, you could get to participate in the capital markets as much or as little as suits your needs or desires. With a little timing help from the Trader Wizard, you should even be able to outperform those mutual funds in your portfolio.
Now, let’s give you a couple ETFs that bear consideration based on my gold call. Let’s watch S&P/TSX Capped Gold Fund (TSE_XGD C$53.45), which trades in Canadian dollars on the Toronto Exchange. The Materials Select Sector SPDR Fund (Amex:XLB $26.53) is not gold-specific but being in the same sector I expect strength here this week. Another commodity-sensitive ETF is the iShares Natural Resources (Amex: IGE $113.19), which looks poised for a (high-risk) break-out to new high levels. These three should be enough to whet your appetite for ETFs should they move higher here as we expect.
By Bill Cara for the Trader Wizard
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