Posted on 01/11/2014 2:07:27 PM PST by RoosterRedux
What Are ETFs?
In the simplest terms, Exchange Traded Funds (ETFs) are funds that track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones, etc. When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don't try to outperform their corresponding index, but simply replicate its performance. They don't try to beat the market, they try to be the market.
ETFs have been around since the early 1980s, but they've come into their own within the past 10 years.
ETF Benefits
ETFs combine the range of a diversified portfolio with the simplicity of trading a single stock. Investors can purchase ETF shares on margin, short sell shares, or hold for the long term.
*snip*
Long-Term Growth of ETFs
It was in the late 1970s that investors and market watchers noticed a trend involving market indexes - the major indexes were consistently outperforming actively managed portfolio funds. In essence, according to these figures, market indexes make better investments than managed funds, and a buy-and-hold strategy is the best strategy to reap the advantages of investing in index growth.
(Excerpt) Read more at nasdaq.com ...
With ETF's, a man working a job he doesn't like can still have a little farm outside of town. That farm is his ETF portfolio.
He can put his heart into his little farm and that becomes his reason for living. ETF's can be understood by the regular guy...but farmers are not the regular guy..and neither are most Americans. Americans are smart and they can make a living in tough times.
Regular human beings can make a good living on ETF's if they take the time to understand things.
ETF's have moved that understanding out of the market center and back out onto the farm.
ETF's trade on the big picture...not on clever little market center tricks.
ETF's give regular guys and gals a way to invest in the REAL economy they always understood.
ETF's bring investing out to the rational world and away from the world dominated by insiders and institutions.
I traded financial ETF’s (FAS/FAZ)in 2007-2008. The money was good if you could guess where the next uptick was coming from, and it was a guessing game. I got out when I noticed the amount of reverse splits happening to keep the financial ETF’s above the penny-stock category, and when I was hit with a huge IRS tax bill for day trading.
Spiders/SPDR (NYSE:SPY) is the largest ETF, with net assets of $173 billion. With an expense ratio of only 0.095%, SPYs are a natural core equity holding for all investors. It has none of the negative characteristics of the other ETF types that I mentioned above.
ETF's bring the market within their understanding...would you tell them to get involved or...
Many Americans will understand SPY and will prepare for their family's future.
And knowing how smart farmers and frontiersmen are...ETF's are nothing to them.
They will grasp them automatically...if they only become aware of them.
I spent many years among the 1% and they frankly aren't so smart. I find farmers and small town merchants and regular families at least as smart as the Starbucks Latte crowd.
But it doesn't hurt that the little men and women have a little bit of help...from you and me.
We can make a real difference!
In the middle of last year, I noticed my 401k was losing money on money market funds. WTF? They are money market funds. I realize interest rates are in the crapper and they don't make much, but got on the horn to the corporate manager and found out that these SLEEZEBALLS TAKE COMMISSIONS ON MONEY MARKET FUNDS!
How in the hell can they justify taking a fee or commission on a money market fund? So I rolled every dollar eligible into a Scottrade IRA.
I bought one EFT (SQQQ) which specializes in shorting the market. Needless to say, it did very well last week. I don't advise anyone putting all their money in such a fund, but it doesn't hurt to have some there.
I believe Rick Edelman was talking about this favorably today on his radio show.
IMO- ETF's are a day trading vehicle. You can easily play both sides, but they have a built in diminishing returns on investment. I've seen FAS go from the $60 range down to $7.00 before a reverse split was done to bring the price back up. If you look at todays charts going back to that time, they don't even reflect the accurate prices because of numerous splits.
I've since gone to buy-and-hold for stocks with a decent dividend. One of my favorite buy-and-hold stocks is a little known tobacco and real estate holding company; VGR. I've held it since 2007. It's been relatively steady with a nice dividend for the price per share.
All-in-all, it has a lot to do with your tolerance for risk. Can you afford to buy and hold? Can you afford to gamble on a sudden upturn/downturn in the markets?
One positive I will give the ETF's is that you can easily play both sides without a separate options upgrade to your account for calls/puts.
My 401K made about 31% last year. I thought that was great. In 2012 it was 15.05% , 2011 it was 1.57%, 2010 it was 13.4%
I try to be an aggressive investor. So depending on your age you should be into some great funds in your 401k.
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