Exchange-Traded Funds For Dummies E-Book

Russell Wild

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2011

Seitenzahl: 633

Beschreibung

The fast and easy way to get a handle on ETFs Exchange-traded funds (ETFs) have a strong foothold in the marketplace, because they are less volatile than individual stocks, cheaper than most mutual funds, and subject to minimal taxation. But how do you use thisfinancial product to diversify your investments in today's fast-growing and ever-changing market? Exchange-Traded Funds For Dummies shows you in plain English how to weigh your options and pick the exchange-traded fund that's right for you. It tells you everything you need to know about building a lean, mean portfolio and optimizing your profits. Plus, this updated edition covers all of the newest ETF products, providers, and strategies, as well as Commodity ETFs, Style ETFs, Country ETFs, and Inverse ETFs. * Create the stock (equity) side of your portfolio * Handle risk control, diversification, and modern portfolio theory * Manage small, large, sector, and international investments * Add bonds, REITs, and other ETFs * Invest smartly in precious metals * Work non-ETFs into your investment mix * Revamp your portfolio to fit life changes * Fund your retirement years Plus, you'll get answers to commonly asked questions about ETFs and advice on how to avoid mistakes that many investors--even the experienced ones--make. It provides forecasts of the future for ETFs and personal spending and also provides a complete list of ETFs and Web resources to assist your investment. With Exchange-Traded Funds For Dummies, you'll soon discover what makes ETFs the hottest investment on the market.

Leseprobe

Exchange-Traded Funds For Dummies®, 2nd Edition

Visit www.dummies.com/cheatsheet/exchangetradedfunds to view this book's cheat sheet.

Table of Contents

Introduction

Since the First Edition . . .

Out of the shadows

Filling the investment voids

Creations of dubious value

Morphing into new creatures

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Part I: The ABCs of ETFs

Part II: Building the Stock (Equity) Side of Your Portfolio

Part III: Adding Bonds, REITs, and Other ETFs to Your Portfolio

Part IV: Putting It All Together

Part V: The Part of Tens

Part VI: Appendixes

Icons Used in This Book

Where to Go from Here

Part I: The ABCs of ETFs

Chapter 1: The (Sort of Still) New Kid on the Block

In the Beginning

Enter the traders

Moving south of the border

Fulfilling a Dream

Goodbye, ridiculously high mutual fund fees

Hello, building blocks for a better portfolio

Will you miss the court papers?

Not Quite as Popular as the Beatles, But Getting There

Moving from Wall Street to Main Street

Keeping up with the Vanguards

Ready for Prime Time

The proof of the pudding

The major players

Twist and shout: Commercialization is tainting a good thing

Chapter 2: What the Heck Is an ETF, Anyway?

The Nature of the Beast

Choosing between the Classic and the New Indexes

Preferring ETFs over Individual Stocks

Distinguishing ETFs from Mutual Funds

Why the Big Boys Prefer ETFs

Trading in large lots

Savoring the versatility

Why Individual Investors Are Learning to Love ETFs

The cost advantage: How low can you go?

Uncle Sam’s loss, your gain

What you see is what you get

Getting the Professional Edge

Consider a few impressive numbers

You can do what they do!

Passive versus Active Investing: Your Choice

The index advantage

The allure of active management

Why the race is getting harder to measure . . . and what to do about it

Do ETFs Belong in Your Life?

Calculating commissions

Moving money in a flash

Understanding tracking error

Making a sometimes tricky choice

Chapter 3: Getting to Know the Players

Creating an Account for Your ETFs

Answering a zillion questions

Placing an order to buy

But wait just a moment!

Trading ETFs like a pro

Introducing the Shops

What to look for

A price structure like none other

The Vanguard Group

Fidelity Investments

Charles Schwab

T. Rowe Price

TD Ameritrade

Scottrade

Other brokerage houses

Presenting the Suppliers

It’s okay to mix and match – with caution

Check your passport

BlackRock iShares

State Street Global Advisers (SSgA) SPDRs

Vanguard ETFs

Invesco PowerShares

ProShares

Van Eck (Market Vectors ETFs)

WisdomTree

Guggenheim

Other suppliers

Familiarizing Yourself with the Indexers

Standard and Poor’s

Dow Jones

MSCI

Russell

Barclays

Meeting the Middlemen

NYSE Arca

NASDAQ

Meeting the Wannabe Middlemen

Commissioned brokers

Separately managed accounts (SMAs)

Annuities and life insurance products

Mutual funds of ETFs

Part II: Building the Stock (Equity) Side of Your Portfolio

Chapter 4: Risk Control, Diversification, and Some Other Things You Need to Know

Risk Is Not Just a Board Game

The trade-off of all trade-offs (safety versus return)

So just how risky are ETFs?

Smart Risk, Foolish Risk

How Risk Is Measured

Standard deviation: The king of all risk measurement tools

Beta: Assessing price swings in relation to the market

The Sharpe, Treynor, and Sortino ratios: Measures of what you get for your risk

Meet Modern Portfolio Theory

Tasting the extreme positivity of negative correlation

Settling for limited correlation

Reaching for the elusive Efficient Frontier

Accusations that MPT is dead are greatly exaggerated

Mixing and Matching Your Stock ETFs

Filling in your style box

Buying by industry sector

Don’t slice and dice your portfolio to death

Chapter 5: Large Growth: Muscular Money Makers

Style Review

What makes large cap large?

How does growth differ from value?

Putting these terms to use

Big and Brawny

Contrary to all appearances . . .

Let history serve as only a rough guide

ETF Options Galore

Strictly large cap or blend?

Blended options for large cap exposure

Strictly large growth

ETFs I wouldn’t go out of my way to own

Chapter 6: Large Value: Counterintuitive Cash Cows

Six Ways to Recognize Value

Looking for the Best Value Buys

Taking the index route

Making an ETF selection

Chapter 7: Small Growth: Sweet Sounding Start-ups

Getting Real about Small Cap Investments

Your Choices for Small Growth

Small cap blend funds

Strictly small cap growth funds

Smaller than Small: Meet the Micro Caps

Chapter 8: Small Value: Diminutive Dazzlers

It’s Been Quite a Ride

Latching on for fun and profit

But keeping your balance

What About the Mid Caps?

Chapter 9: Going Global: ETFs without Borders

The Ups and Downs of Different Markets around the World

Low correlation is the name of the game

Remember what happened to Japan

Finding Your Best Mix of Domestic and International

Why putting two-thirds of your portfolio in foreign stocks is too much

Why putting one-fifth of your portfolio in foreign stocks is insufficient

Why ETFs are a great tool for international investing

Not All Foreign Nations — or Stocks — Are Created Equal

Choosing the Best International ETFs for Your Portfolio

Four brands to choose from

All the world’s your apple: ETFs that cover the planet

European stock ETFs: From the North Sea to the shores of the Mediterranean

Pacific region stock ETFs: From Mt. Fuji to that big island with the kangaroos

Emerging-market stock ETFs: Well, we hope that they’re emerging

iShares value and growth: Two special ETFs for style investing abroad

Small cap international: Yes, you want it

Chapter 10: Sector Investing: ETFs According to Industry

Selecting Stocks by Sector, not Style

Speculating on the Next Hot Industry

Sizzling and sinking

Momentum riders and bottom feeders

Doing Sector Investing Right

Calculating your optimal sector mix

Seeking risk adjustment with high and low volatility sectors

Knowing where the style grid comes through

Combining strategies to optimize your portfolio

Seeking low correlations for added diversification

Sector Choices by the Dozen

Vanguard ETFs

Select Sector SPDRs: State Street Global Advisors (Part I)

SPDRs: State Street Global Advisors (Part II)

BlackRock’s iShares

PowerShares

Chapter 11: Specialized Stock ETFs

Investing for a Better World

Tracking the history of SRI performance

Your growing number of choices for social investing

A close-up look at your SRI options

Dividend Funds: The Search for Steady Money

Your high dividend ETF options

Promise of riches or smoke and mirrors?

Investing in Initial Public Offerings

The rollercoaster of recent IPO performance

Taking a broader look at IPOs

Funds That (Supposedly) Thrive When the Market Takes a Dive

Entering an upside-down world

Boasting a track record like none other

Funds That Double the Thrill of Investing (for Better or Worse)

Crazy math: Comparing leveraged funds to traditional ETFs

Examining a rather pathetic track record

All-In-One ETFs: For the Ultimate Lazy Portfolio

Getting worldwide exposure to stocks and bonds

Russell’s average review for the average reader on an average day

Part III: Adding Bonds, REITs, and Other ETFs to Your Portfolio

Chapter 12: For Your Interest: The World of Bond ETFs

Tracing the Track Record of Bonds

Portfolio protection when you need it most

History may or may not repeat

Tapping into Bonds in Various Ways

Finding strength in numbers

Considering bond fund costs

Casting a wide net

Sampling Your Basic Bond-ETF Menu

Tapping the Treasurys: Uncle Sam’s IOUs

Gas at $5.00 a gallon? Getting inflation protection in a flash

Banking on business: Corporate bond ETFs

The whole shebang: Investing in the entire U.S. bond market

Moving Beyond Basics into Municipal and Foreign Bonds

Municipals for mostly tax-free income

Foreign bonds for fixed-income diversification

Emerging-market bonds: High risk, high return

Determining the Optimal Fixed Income Allocation

60/40? 50/50? Finding a split that makes sense

Meet Joe, age 67, with a little more than $600,000 in the bank

Meet Betsy and Mike, age 36, with $30,000 in the bank

Chapter 13: Real Estate Investment Trusts (REITs): Becoming a Virtual Landlord

Considering Five Distinguishing Characteristics of REITs

Limited correlation to the broad markets

Unusually high dividends

Different taxation of dividends

Special status among financial pros

Connection to tangible property

Calculating a Proper REIT Allocation

Judging from the past

Splitting the baby: Domestic and international REIT funds

Picking REIT ETFs for Your Portfolio

U.S. domestic REIT ETFs

Global REIT funds

Chapter 14: All That Glitters: Gold, Silver, and Other Commodities

Gold, Gold, Gold!

Midas touch or fool’s gold?

A vastly improved way to buy the precious metal

The tax man cometh

Silver: The Second Metal

Quick silver on the move

If you must . . .

Oil and Gas: Truly Volatile Commodities

Oily business

No experience necessary

The sad saga of contango

Taxing your tax advisor

(Somewhat) Safer Commodity Plays

General commodity index funds

Actively managed, or quasi-actively managed, commodity funds

Awaiting new developments

Playing the Commodity Market Indirectly

Tapping into commodity companies

Tapping into commodity-rich countries

Chapter 15: Working Non-ETFs and Active ETFs into Your Investment Mix

Tinkering with an Existing Stock or Mutual Fund Portfolio

Improving your diversification

Minimizing your investment costs

Using ETFs to tax harvest

Looking Beyond the Well-Rounded ETF Portfolio

Mutual funds as cheap as ETFs: Vanguard Admiral shares

Where few investors have gone before: DFA funds

Timber REITs

I Bonds: An Uncle Sam bond with a twist

Market-neutral mutual funds

A commodity fund without too much hassle

Fixed immediate annuities

Venturing into exchange-traded notes

Going Active with ETFs

Part IV: Putting It All Together

Chapter 16: Sample ETF Portfolio Menus

So, How Much Risk Can You Handle and Still Sleep at Night?

A few things that just don’t matter

The irony of risk and return

The 20x rule

Other risk/return considerations

The limitations of risk questionnaires

Keys to Optimal Investing

Incorporating Modern Portfolio Theory into your investment decisions

Minimizing your costs

Striving for tax efficiency

Timing your investments (just a touch)

Finding the Perfect Portfolio Fit

Considering the simplest of the simple

Racing toward riches: A portfolio that may require a crash helmet

Sticking to the middle of the road

Taking the safer road: Less oomph, less swing

Chapter 17: Exercising Patience: The Key to Any Investment Success

The Tale of the Average Investor (A Tragicomedy in One Act)

Returns that fall way short of the indexes

ETFs can make failure even easier!

The lure of quick riches

The Value Line Paradox

Paper versus practice

The lesson to be learned

“Investment Pornography” in Your Mailbox (and Mine)

Welcome to the wild, wacky world of investment advice

Caveat emptor: ETF-trading websites for suckers

Patience Pays, Literally

Talk about unpredictability

A short history of the market’s resiliency

Chapter 18: Exceptions to the Rule (Ain’t There Always)

Rebalancing to Keep Your Portfolio Fit

How rebalancing works

How often to rebalance

Rebalancing for retirees

Contemplating Tactical Asset Allocation

Understanding the all-important P/E ratio

Applying the ratio to your portfolio

Buying unloved assets

Investing the SweetSpot way

Harvesting Tax Losses, and the IRS’s Oh-So-Tricky “Wash Rule”

What the heck is “substantially identical” anyway?

As always, consider cost

Revamping Your Portfolio with Life Changes: Marriage, Divorce, and Babies

Betsy and Mark: A fairly typical couple

One year later

Yet one year later

Are Options an Option for You?

Understanding puts and calls

Using options to make gains without risk

Insuring yourself against big, bad bears

Seeming almost too good to be true

Weighing options strategies against the diversified ETF portfolio

Factoring in time and hassle

Chapter 19: Using ETFs to Fund Your Golden Years

Aiming for Economic Self-Sufficiency

Taking the basic steps

Choosing the right vessels

Curing the 401(k) Blues

Lobbying the benefits manager

Introducing the Roth 401(k)

Strategies for the Self-Employed

The traditional IRA versus the Roth IRA

Taxes now or taxes later?

Ushering Your Portfolio into Retirement Readiness

15+ years and counting

Less than 15 years to retirement

Withdrawing Funds to Replace Your Paycheck

Don’t obsess over maintaining principal or drawing from dividends

As always, watch the fees

Take your minimum required distributions

IRA, 401(k), or regular (taxable) brokerage account: Which to tap first?

Part V: The Part of Tens

Chapter 20: Ten FAQs about ETFs

Are ETFs Appropriate for Individual Investors?

Are ETFs Risky?

Do I Need a Financial Professional to Set Up and Monitor an ETF Portfolio?

How Much Money Do I Need to Invest in ETFs?

With Hundreds of ETFs to Choose From, Where Do I Start?

Where Is the Best Place for Me to Buy ETFs?

Is There an Especially Good or Bad Time to Buy ETFs?

Do ETFs Have Any Disadvantages?

Does It Matter Which Exchange My ETF Is Traded On?

Which ETFs Are Best in My IRA, and Which Are Best in My Taxable Account?

Chapter 21: Ten Mistakes Most Investors (Even Smart Ones) Make

Paying Too Much for an Investment

Failing to Properly Diversify

Taking on Inappropriate Risks

Selling Out When the Going Gets Tough

Paying Too Much Attention to Recent Performance

Not Saving Enough for Retirement

Having Unrealistic Expectations of Market Returns

Discounting the Damaging Effect of Inflation

Not Following the IRS’s Rules

Failing to Incorporate Investments into a Broader Financial Plan

Chapter 22: Ten Forecasts about the Future of ETFs and Personal Investing

ETF Assets Will Continue to Grow . . . for Better or Worse

More Players May Enter the Field, but Only a Few

Investors Will Get Suckered into Buying Packaged Products

ETF Investors Will Have More, and Better, Options

The Markets Will (Unfortunately) See Greater Correlation than in the Past

Asset Class Returns Will Revert toward Their Historic Means

Taxes Will Rise

Inflation Will Remain Tame

Private Pensions (of Sorts) May Emerge from the Rubble

Hype Will Prevail!

Part VI: Appendixes

Appendix A: Great Web Resources to Help You Invest in ETFs

The biggies

Some of the lesser players

Appendix B: Glossary

Cheat Sheet

End User License Agreement

Exchange-Traded Funds For Dummies®, 2nd Edition

by Russell Wild, MBA

Exchange-Traded Funds For Dummies®, 2nd Edition

Published byJohn Wiley & Sons, Inc.111 River St.Hoboken, NJ 07030-5774

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Copyright © 2012 by John Wiley & Sons, Inc.

Published simultaneously in Canada

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About the Author

Russell Wild is a NAPFA-certified financial advisor and principal of Global Portfolios, an investment advisory firm based in Allentown, Pennsylvania. He is one of only a handful of wealth managers in the nation who is both fee-only (takes no commissions) and welcomes clients of both substantial and modest means. He calls his firm Global Portfolios to reflect his ardent belief in international diversification — using exchange-traded funds to build well-diversified, low-expense, tax-efficient portfolios.

Wild, in addition to the fun he has with his financial calculator, is also an accomplished writer who helps readers understand and make wise choices about their money. His articles have appeared in many national publications, including AARP The Magazine, Consumer Reports, Details, Maxim, Men’s Health, Men’s Journal, Cosmopolitan, Reader’s Digest, and Real Simple. He writes a regular finance column for The Saturday Evening Post. And he has also contributed to numerous professional journals, such as Financial Planning, Financial Advisor, and the NAPFA Advisor.

The author or coauthor of two dozen nonfiction books, Wild’s last work (prior to the one you’re holding in your hand) was One Year to an Organized Financial Life, coauthored with professional organizer Regina Leeds, published by Da Capo Press. He also wrote two other Dummies titles in addition to this one: Bond Investing For Dummies and Index Investing For Dummies. No stranger to the mass media, Wild has shared his wit and wisdom on such shows as Oprah, The View, CBS Morning News, and Good Day New York, and in hundreds of radio interviews.

Wild holds a Master of Business Administration (MBA) degree with a concentration in finance from The Thunderbird School of Global Management, in Glendale, Arizona (consistently ranked the #1 school for international business by both U.S. News and World Report and The Wall Street Journal); a Bachelor of Science (BS) degree in business/economics magna cum laude from American University in Washington, D.C.; and a graduate certificate in personal financial planning from Moravian College in Bethlehem, Pennsylvania (America’s sixth-oldest college). A member of the National Association of Personal Financial Advisors (NAPFA) since 2002, Wild is also a long-time member and past president of the American Society of Journalists and Authors (ASJA).

The author grew up on Long Island and now lives in Allentown, Pennsylvania. His son Clayton attends George Washington University in Washington, D.C. His daughter Adrienne is in high school. His dog Norman, a standard poodle, protects their home from killer squirrels. His website is www.global portfolios.net.

Dedication

To the small investor, who has been bamboozled, bullied, and beaten up long enough.

Author’s Acknowledgments

Although I’ve written many books, the first edition of this book was my first Dummies book, and writing a first Dummies book is a bit like learning to ride a bicycle — on a very windy day. If it weren’t for Joan Friedman, project editor, who kept a steady hand on the back of my seat, I would surely have fallen off a curb and been run over by a pickup truck flying a Confederate flag. Joan, hands down, is one of the best editors I’ve ever worked with. She’s a very nice person, too. For those reasons, I was absolutely thrilled when I learned that Joan would be project editor on this second edition, as well. If there’s ever a third edition . . . Joan?

Other nice people that I’d also like to tip my bicycle helmet to include Marilyn Allen of Allen O’Shea Literary Agency (she calls me “babe,” just like agents do in movies; I love that) and Stacy Kennedy, acquisitions editor at Wiley. If these two gals hadn’t gotten together, I wouldn’t have had a bicycle to ride.

Thanks, too, to Paul Justice, CFA, editor of Morningstar’s ETFInvestor newsletter. Paul, who knows a heck of a lot about ETFs, was the official technical editor on this book, and he checked every chapter to make certain that this remained strictly a work of nonfiction. Fellow fee-only financial advisor and good friend Neil Stoloff then double checked. You da man, Neil.

I’d like to thank Morningstar — all the folks there aside from Paul — for extreme generosity in providing fund industry data and analysis. Additional good data came from the various ETF providers, such as Vanguard, State Street, BlackRock, and T. Rowe Price, as well as a few non-ETF providers, such as Dimensional and the U.S. Treasury. Thanks, all.

I’d also like to thank Donald Bowles, my old professor of economics at American University, for showing me that supply and demand curves can be fun. Sorry we lost touch, but I haven’t forgotten you.

And finally, I’d like to thank my old man, attorney Lawrence R. Wild, both my most beloved and most difficult client, who, if he told me once, told me a thousand times: ‘Rich or poor, it’s good to have money. It took me years, Dad, to discover the profound wisdom in that statement.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments at http://dummies.custhelp.com. For other comments, please contact our Customer Care Department within the U.S. at 877-762-2974, outside the U.S. at 317-572-3993, or fax [phone].

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Acquisitions, Editorial, and Vertical Websites

Project Editor: Joan Friedman

Acquisitions Editor: Stacy Kennedy

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Cover Photos: © iStockphoto.com/ Yong Hian Lim

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Introduction

Every month, it seems, Wall Street comes up with some newfangled investment idea. The array of financial products (replete with 164-page prospectuses) is now so dizzying that the old lumpy mattress is starting to look like a more comfortable place to stash the cash. But there is one relatively new product out there definitely worth looking at. It’s something of a cross between an index mutual fund and a stock, and it’s called an exchange-traded fund, or ETF.

Just as computers and fax machines were used by big institutions before they caught on with individual consumers, so it was with ETFs. They were first embraced by institutional traders — investment banks, hedge funds, and insurance firms — because, among other things, they allow for the quick juggling of massive holdings. Big traders like that sort of thing. Personally, playing hot potato with my money is not my idea of fun. But all the same, over the past several years, I’ve invested most of my own savings in ETFs, and I’ve suggested to many of my clients that they do the same.

I’m not alone in my appreciation of ETFs. They have grown exponentially in the past few years, and they will surely continue to grow and gain influence. While I can’t claim that my purchases and my recommendations of ETFs account for much of the growing $1 trillion+ ETF market, I’m happy to be a (very) small part of it. After you’ve read this second edition of Exchange-Traded Funds For Dummies, you may decide to become part of it as well, if you haven’t already.