ETFs - Why You Should Be Using ETFs In Your Own Portfolio
The Dynamic Wealth Report
February 27, 2009
The One Investment Arrow You Must Have In Your Quiver
I was at lunch the other day with a friend of mine. Bob and I
have known each other for about 12 years now. We recently reconnected
and met-up over lunch. It was perfect for me… he paid. (Those of you who
know me know how frugal I am!) Anyway, we were talking about his
business. He’s a computer consultant, and business was going well.
What surprised me was his next comment. Knowing how much I studied the
financial markets, he asked me for help. He’d recently moved a big chunk
of his retirement proceeds into cash. I asked what his next move was:
“Probably reinvest slowly in a few mutual funds… maybe some individual
stocks.”
“Why don’t you look at buying a few good ETFs,” I suggested.
That’s when I got the stare.
I’ve seen it a hundred times before. The stare is an easy way to
identify when someone’s in over their head. They have no idea what
you’re talking about. They don’t even know enough to ask a question or
two.
That’s the look Bob gave me.
Slowly he started shaking his head… “I have no idea what ETFs are.”
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Bob’s not alone. Lots of bright and savvy investors are in the
same boat. They’ve heard of ETFs. They’ve looked at them a bit, but
they don’t quite understand ‘em. And that’s unfortunate given what a
powerful portfolio tool they can be.
We recently brought on board an ETF expert – Corey Williams – to help
our subscribers navigate the exciting world of ETFs. More importantly,
he’ll show us how to profit from them. He’s got a very interesting
background, and we’re expecting great things from him. I’ll tell you
more about Corey in a little bit.
Back to ETFs.
Personally, I love ETFs. I’ve used them in my own portfolio for more
than a decade. As a matter of fact, right now, the vast majority of my
retirement dollars are invested in ETFs.
I know what you’re thinking… ok great, so what’s an ETF?
Put simply, an ETF is a ‘basket’ of securities (similar to a mutual fund
but with some key advantages). Depending on the ‘basket’ you select, it
can hold a great deal of different investments.
For example, there’s an S&P 500 Index ETF (SPY). You may have even heard
about it. If you buy this ETF – right now trading around $80 per share –
you get a little piece of all 500 stocks in the index.
There’s another ETF focused on healthcare. It holds 32 different
healthcare and healthcare-related companies. If you buy that one ETF,
you get a little piece of each and every one of these 32 companies.
There’s even ETFs that hold commodities, currencies, and bonds.
At last count there’s more than 800 ETFs that actively trade on the
markets. And here’s the great thing. They trade just like stocks.
So, now that you know what ETFs are… why would you use them?
Good question. There are lots of benefits to ETFs, but here are the
five
most important.
First, ETFs are low cost.
Most mutual fund management fees (what a manager gets paid to lose… I
mean invest your money) is huge. Sometimes they can be as much as 3% or
4% or more for specialty funds. Don’t forget this management fee gets
collected every year… even if the manager loses money. In contrast, most
ETFs have much smaller fees, some can be as low as 0.15%.
Second is liquidity.
Liquidity is very important. Being able to find a seller when you want
to buy, and finding a buyer when you want to sell is the difference
between an investment and a waste of money.
Since most ETFs trade on the big exchanges just like stocks, liquidity
is rarely a problem. There are ETFs that trade millions and millions of
shares every day!
This makes them a perfect way to get into and out of positions very
quickly… and without a lot of headache or cost (you just pay a regular
commission, as if buying a stock).
Third leverage.
Some ETFs can be used by aggressive traders to maximize performance. By
investing in a leveraged ETF you can get two or three times leverage in
your investment. No need to borrow money or jump through hoops to get a
margin account. These leveraged ETFs provide huge returns to investors
when the market moves in the right direction.
The fourth reason I like ETFs is the ability to profit even if the
market falls.
It doesn’t matter what direction the market is heading. Some ETFs are
designed to move inverse of the index they’re tracking. That means if
the market falls, these inverse ETFs go UP in value! Imagine the profit
potential from today’s falling market.
Finally, ETFs have great investment purity.
Most ETFs are focused on a specific index or industry. This allows us to
invest in a very focused way. With ETFs we can invest in certain
sectors, and even sub-sectors. This allows us to identify areas of the
market with the biggest profit potential.
So there you have it, five great reasons to use ETFs. If you’re not
taking advantage of the power of ETFs right now, I suggest you begin
taking a closer look. Trust me, you’ll be glad you did!
***Editor’s Note: With the help of our new in-house ETF expert, Corey
Williams, we’ve found an ETF strategy that we think will knock the cover
off the ball in this market. Called Sector ETF Trader, this advisory
will identify promising sectors of the market, and then suggest ETFs you
can immediately buy for a shot at substantial profits.
However, you should know we’ve decided to limit the number of initial
openings to this breakthrough strategy to just 500 members. Further,
these initial openings will only be available to our 69,927
Dynamic
Wealth Report readers. So rest assured you’ll have a chance to join
before the general public.
For all those who’ve expressed interest in this service, we’ll have more
details early next week. In the meantime, have a great weekend!
• Wachovia
upgraded a number of the shipping companies to “outperform.” Diana Shipping (DSX),
Eagle Bulk
Shipping (EGLE), and Euroseas (ESEA) all
received the upgrade. Any rebound in commodities and these stocks should
do really well.
• Capital One (COF) was downgraded by JP Morgan. Concerns over consumers ability to pay off credit card debt is a big
reason to avoid this company.
• Credit Suisse initiated coverage on Watson Pharmaceuticals
(WPI) this week with a “Neutral” rating. Is that an opinion?
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