I have a confession to make: I’m so busy hunting down stock picks, visiting mines, and managing portfolios for my subscribers that I often neglect my own portfolio.
That’s why I’ve traditionally kept most of my investment dollars in mutual funds. Let someone else manage my money, right?
But I always hated the feeling of not knowing what specific investments my money went into … or whether my funds were even outperforming their benchmarks (it’s a fact that most mutual funds don’t).
I don’t think I’m alone … you’ve probably faced many of the same challenges. Good thing we now have Exchange-Traded Funds (ETFs) at our disposal.
These investments, which hold baskets of securities and closely track particular sectors or markets, have been around for years. But they’re getting a lot more sophisticated.
Heck, ambitious investors can employ all kinds of advanced strategies in just a few clicks. I’ll tell you more about that in just a moment. First I want to show you …
How to Build an Efficient
Portfolio In Just 20 Minutes
Let’s pretend I’m going to start from scratch. My goal is simple: I want to construct a well-diversified portfolio that I can just “set and forget”.
The first question is what kind of investments I should use. My answer is ETFs, and it only took me one minute to decide. Here’s why:
The average mutual fund has a total expense ratio of 1.5%. Meanwhile, the average total expense ratio of ETFs is just 0.4%. That means an ETF can deliver a much bigger total return over time because you get to keep more of your money!
Don’t think a 1.1-percentage-point difference is a big deal? Let’s run the numbers …
Say you put $50,000 into an ETF with a 0.4% total expense ratio, and another $50,000 into a mutual fund with a 1.5% expense ratio.
If both return 10% a year over the next decade …
At the end of your 10-year holding period, the total return on the ETF will be nearly $12,000 more than what the mutual fund produced. That’s an additional 24% on the original amount you invested!
Now, not all ETFs have low expense ratios, so it’s important to choose wisely.
To demonstrate my point, I’ve charted out the recent performance of two different telecom ETFs — Vanguard Telecom (VOX; expense ratio of 0.26%) and the Dynamic Telecommunications & Wireless Portfolio (PTE; expense ratio of 0.67%).
Both of these ETFs track the same sub-sector, so both have delivered pretty much the same performance. Investors in PTE are paying more for essentially the same results!
Once I’ve chosen to use low-cost ETFs as my investment vehicles, I need to figure out my asset allocation. That’s just a fancy way of saying I have to determine how much of my money to put into each of the major investment categories (stocks, bonds, etc.).
I’m still fairly young (no quibbles from the peanut gallery, please), so I’d put about 75% of my portfolio into equities and 25% into bonds.
By the way, I don’t think anyone should ignore bonds — they’re the anchor of any portfolio (though, generally, the younger you are, the smaller your anchor needs to be).
Historically, incorporating bonds into a portfolio hasn’t been easy. So many maturity dates, interest rates, and credit ratings to deal with! Luckily, there are some good bond ETFs that give you a well-diversified approach in one fell swoop.
That’s not to say you can’t get more advanced by selecting multiple bond ETFs. Me? I’d just choose a low-expense bond fund that invests in high-quality securities.
It wouldn’t take very long to track down a suitable bond ETF, so I figure there’s still ten minutes left to decide how to invest the equity portion of my portfolio.
And, yet again, I’d like to point out that ETFs have a great advantage over mutual funds — it’s easy to find ETFs that suit just about any investing style.
I figure half my equity allocation should go in a broad sector fund. Because I like both small-caps and dividends, I’d pick an ETF that focuses on those two areas.
I also believe foreign equities and natural resources are going to outperform going forward. So, I’d split the rest of my money between an ETF that tracks foreign/emerging markets and one that tracks natural resources like energy and metals.
With just four ETFs, I’ve covered all my bases. Another couple minutes placing my trades online and — boom! — I’m done.
Plus, monitoring my portfolio’s performance will be a snap. All I have to do is take a quick look at how the broad sectors are doing. My ETFs should pretty much be following suit.
We’ve Just Scratched the Surface:
There’s So Much More to ETFs!
Before I go any further, I want you to know that I don’t think mutual funds are bad. Far from it. There are lots of good, low-cost mutual funds out there.
I just think that ETFs can really work in your favor. Every day, more investors come to the same conclusion. Did you know …
- In the U.S., ETFs have grown from virtually nothing in the mid-1990s to more than 300 funds with more than $400 billion in assets.
- Globally, ETF assets climbed 21% to $504.5 billion in 669 funds at the end of September. That’s up from just $5.26 billion in only 21 funds ten years ago.
- Morgan Stanley says the amount of money in global ETF funds should hit about $2 TRILLION within five years — QUADRUPLE the current amount.
As you can see, money is pouring into ETFs like never before.
And that’s one more reason to love them. If I buy the right ETFs now, they stand a good chance of going up even more because of all the other investors piling in behind me.
Now, not all ETFs are created equal. It’s important to know how the fund families — iShares, Claymore, Merrill Lynch, PowerShares, Rydex, Vanguard and more — differ from each other. And even within the specific fund families, there are all kinds of choices …
Perhaps you want an ETF that focuses on high-yield stocks … alternative energy … silver … stocks with heavy insider buying … biotech … defense.
Indeed, there are ETFs that focus on all those things and more. And no wonder — more than 250 ETFs were launched in the past year alone. And another 150 are about to hit the market!
That means you face some big questions: How many ETFs should you buy? How many do you need to be truly diversified? How can you determine which funds are right for you?
To help you sort out these issues, I’ve written a new report, ETFs Made Easy. Sure, it will take you more than 20 minutes to read the report — it’s 39 pages long! But it has easy-to-digest chapters. In almost no time, you’ll be ready to lock, load and buy the best ETFs that suit your investment style.
In ETFs Made Easy, I tell you:
- The names of more than 300 low-cost ETFs that you can start using right now! I’ve grouped them by investing focus so you can pick and choose the lowest-cost funds that suit your investment approach.
- What’s behind these funds — the companies that sponsor them and what sets them apart from each other. It should make your investing choices easier.
- How to use ETFS to play some of the hottest sectors today: tech … bonds … currencies … commodities … China!
Most importantly, I also give you the scoop on mistakes you don’t want to make. ETFs are a useful tool, but just like a shovel, they can be used to dig a flower bed or your own grave. My report spells out the pros and cons of ETFs for you.
And remember those more advanced strategies I alluded to earlier? Well, my report will show you …
How to Supercharge Your
Performance With Sector Rotation
I’m too busy to be anything but a buy-and-hold kind of guy with the bulk of my portfolio. But you may want to try and outperform the market by switching your money out of cooling sectors and into ones that are heating up.
If so, ETFs are the perfect vehicle to use because they cover practically every nook and cranny of the market. Sector rotation with ETFs pumps up your potential return (compared to broad-based index or mutual funds) while at the same time greatly reducing your risk (compared to individual stocks). Let me give you an example …
The line in my chart shows the price of the energy sector ETF (XLE) divided by the S&P 500 ETF (SPY). The higher it goes, the more energy is outperforming the broad S&P 500. You can see that energy outpaced the broad market for years.
Do you want to know where the hot money is going now … and if it’s going to come back into energy? In ETFs Made Easy, I’ll show you how to easily track these moves on your own.
My report has the potential to significantly power up your returns. For instant access to my ETF Do’s and Don’ts, along with strategies and a comprehensive list of ETFs, just call 1-800-291-8545 and we’ll send it to you IMMEDIATELY!
Yours for trading profits,
Sean
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About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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