Fixed Income ETF

A fixed income ETF provides a way to access arguably more stable and reliable bond market with relative ease. As an ETF as the investment vehicle also brings with it diversification as each fund will typically hold dozens if not hundreds of different bonds at any given time. Prior to such an option, the average investor would be unable to manage such a portfolio and it would be incredibly expensive to do so because of transaction fees.

Fixed income ETFs may also be of interest to those that are looking to limit volatility both over the short or long term. For those that are approaching retirement, volatility is a key factor as there is less time to recover from a dip as compared to younger investors.

Another use for such ETFs is as way to maintain liquidity of your assets similar to using a money market account while also taking advantage of a greater return. Unlike individual bonds that require you to hold them for a specific duration, fixed income ETFs allow you to buy and sell when it suits. Do watch out for transaction fees!

As is always the case, no single ETF is the ideal answer for all people at all times. Firstly, the investor has to do a bit of research to determine if a short or long term fund is the right choice for their needs. Before jumping into the fixed income funds, it is up to the investor to perform the necessary due diligence particularly by reviewing the prospectus.

There are a number of options in the fixed income category and numerous providers including iShares with different offerings. For the lowest level of risk (with corresponding lower potential) consider treasury-based ETFs such as but iShares Lehman Year Treasury Bond Funds which have a short (SHY), medium and (IEF) long term (TLT) focus. With more risk comes the potential for greater returns so investors in this category might want to consider iShares Aggregate Bond Fund (AGG).

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Online Investing vs. Traditional Financial Planners

Many individual investors are moving away from the more traditional broker and planner relationships of the past to self-directed online portfolios. This doesn't mean it's the right choice for everyone or that local planners no longer have anything valuable to offer, it only means that online investing is quickly becoming the most popular way for individual investors to manage their money.

Why is this happening? Partly because online brokerages are so easy to use. Even internet and investing novices can sign up, log on and start trading in less than an hour. This is very appealing to investors who would like to manage their own portfolio rather than going through a broker or planner every time they want to make a trade.

Another factor is that the internet is maturing rapidly. During the 80's and 90's the internet was transformed from a novel way to communicate and do business to the most powerful information sharing tool that the world has ever seen. As a result, there is more high-quality and inexpensive investing information available to the average investor than ever before. Investing research sites have also made huge strides over the last ten years. Beginning investors that are internet savvy can quickly learn to use investing research and analysis tools that are just as powerful as any used by investing professionals.

(Note: Local brokers are being pushed to offer more products and services to stay competitive. This means that even though financial planners still offer a wider array of services, the line between broker and financial planner is blurring. For simplicity's sake, we will use the term "planners" for the rest of this article to encompass both.)

Investors that switch from a local planner to an online brokerage, or vice versa, are sometimes disappointed because the actual experience doesn't match their expectations. Let's start by covering some common misperceptions to help you avoid this costly mistake.

Perception: You can't get the kind of high quality investing information you receive through your Financial Planner anywhere else.
Reality: This is definitely not true. You have access to tons of high-quality and inexpensive investment guidance if you need help making decisions (see our Can you afford outstanding investment advice? article for more on this subject). If you prefer to do your own research, you also have affordable access to investing research sites that provide tools as powerful as any used by professional investors (see our Morningstar.com: The Power of Institutional Investors at your fingertips article for more on this subject).

Perception: Local Financial Planners overcharge.
Reality: In general, yes, local planners do charge much more than an online brokerages but there are a few specialized services that they can provide at competitive prices. For example, if you have advanced estate, tax, and insurance planning questions, an hourly financial planner is a cost effective option. You'll also find that many online brokerages are not equipped to handle advanced planning needs.

Perception: Only a planner can help me with advanced topics such as estate, tax and insurance planning.
Reality: A few online brokerages offer these specialized services but unless you have a very large account ($500,000+), you will pay just as much for "managed account" services as you would for any local planner. Again, do your homework, an hourly planner will probably offer these advanced services at competitive rates and you will get the added benefit of a personal relationship and face-to-face interaction.

Perception: Online brokerages are always less expensive than local financial planners.
Reality: There are many expensive premium online brokerages that will charge you just as much or more than a local planner. Trading fees can vary anywhere from $1.50 to $75.00 per transaction at online brokerages so do your homework before you move your money. Our 2008 Online Brokerage Rankings are a good place to start comparing online brokerage expenses.

Perception: Only a local planner or broker can offer face-to-face interaction.
Reality: Strangely, many online brokerages now have local offices across the country if you'd rather ask your questions in person. However, every online brokerage we reviewed except for OptionsXpress charges you extra for broker assisted transactions so you will have given up the cost advantage of online trading if you trade through these local reps.

Perception: The premium you pay for a Financial Planner is a small price to pay for the outstanding investment advice, personal attention, and in-depth research they are providing.
Reality: Are you kidding? Investors aren't buying a custom suit, they should be focused on returns. Paying 12b-1 fees, transaction fees, redemption fees, loads and other fees for great service cuts a big chunk out of your profit. Also remember that local financial planners are constrained by client load, limited to investments in the fund families their company sells, and make a living by charging clients fees. It gets hard to justify paying a lot more for a local planner when you consider that none of these extra expenses we just listed improve the quality of the information they provide.

Another quick way to figure out if you should transition to an online brokerage is to evaluate your personal preferences and investing style. The questions below will tell you whether or not you share many traits in common with the typical online investor.

Do you understand the basic principles of investing?
Online investors prefer to manage their own portfolio. This means that they need to be familiar with and adhere to the basic principles of investing or they could lose a lot of money very quickly. See our 10 Basic Principles of Investing article for more information on this subject. If you don't feel ready to manage your own money responsibly, you may not be happy with the transition to an online brokerage.

Do you prefer to have complete control of your money or do you prefer a helping hand?
Online investors want the freedom to make their own choices and this is one of the major reasons why online investing appeals to them. Online brokerages give you complete control over your portfolio, you can avoid the hassle of always having to go through your planner to make a trade. You will decide what to buy and you will trade however and whenever you want. This appeals to self-directed investors but may be seen as a drawback for investors who prefer a lot of guidance and advice or don't like doing investing research.

Are you willing to learn to use your online brokerage's website?
Don't worry, this doesn't mean you need to be internet savvy, but you must be willing to learn. Many of the online investing sites, such as Scottrade, cater to beginning investors. Others, such as Schwab.com, offer special services such as a "New Client Concierge" to help beginners get acclimated. While most sites try to make it easy for newbies, there's no way around the fact that you will have to learn to use your site's investing tools and trading platform. If you don't have access to a high-speed connection or if you dislike using the internet, online brokerages may not be a good fit for you.

Do you have a clearly defined investing strategy?
All successful long-term online investors have developed a strategy that works for them. Even though you will likely try several strategies over the course of your investing career, it's important to have one in mind from day one. Why? Because it's very difficult to beat the market without a clear picture of your investment selection criteria, risk management plan and investment objectives. Before you transition to an online brokerage, choose and study a strategy that is in line with your investing goals and risk tolerance.

Below are a few final tough questions that you should ask yourself, your financial planner and your online brokerage. If the transition to online investing still appeals to you after reading all three sections of this article, you can make your decision to invest online with confidence.

How disciplined are you?
After leaving your planner, you may still receive great investment advice through investing newsletters or through your own research, but none of that matters if you don't have the discipline to manage your own portfolio wisely. It will be up to you to make trades, stick to your risk management strategy and keep up with your allocation and diversification mix.

How much time do you have?
Saying time is money might sound cliché but it's very true when it comes to self-directed portfolios. If you don't devote enough time to your portfolio you will inevitably trail the market. This is a challenge for those of us that have to balance managing our portfolio with a full-time career and a family. If you are pressed for time but determined to manage your own portfolio, choose a passive strategy such as Index Investing.

Are you prepared to manage your portfolio for the next 5, 10, 20, or even 30 years?
Long-term investors win, short-term investors lose, and that isn't a theory, it's a fact. If you think you'll get bored of managing your own portfolio after a year or two, either stick with your planner or choose a passive strategy that will only require the occasional portfolio checkup.

Ask your planner to explain their strategy and show you how they are implementing it.
This is an important question since only 20% of professional money managers beat the market.

Put together a list of your planner's recommendations. Did they outperform the market?Compare your broker's investments to the strategy he/she claims to follow. Are the recommendations in line with the strategy's selection criteria? For example, if your planner is a value investor, you'd expect to see low price-to-book ratios.Compare the planner's performance to broad and relevant indexes. For example, if your planner invested 50% of your money in international large cap stocks and 50% in domestic large cap stocks, the MSCI EAFE and S&P 500 would be great indexes to use as performance benchmarks.

Ask your planner how they will adjust their strategy over time as your investing goals mature.
As you get closer to retirement, your goals will likely change. You will become more concerned with capital preservation and income and less concerned with capital appreciation. Your planner should be able to clearly explain how he will modify your portfolio since he should already be doing that for other clients that are closer to retirement.

Ask your planner to provide a complete breakdown of the fees you've paid over the last two years.
This is a great test, it can tell you two important things about your planner. First, if they disclose every commission and fee, even the hard to dig out fees such as those paid out of a fund's 12b-1, they have earned some trust. Second, you are dealing with a pretty good money manager if your returns are beating the market after subtracting out all fees and expenses.

Since I provided a list of questions to help you decide when to leave your planner we thought it only fair to provide a list of questions that tell you when to stay. Does your planner outperform the market after fees and taxes are taken into consideration? Do they provide great diversification and broad asset allocation to maximize your returns while minimizing risk? Does your planner provide a complete financial plan including insurance, estate, retirement and tax planning? Do you receive occasional perks such as IPO shares or entry into top performing closed mutual funds? If you answered yes to all of these questions, you should think twice before leaving.

Ask your online brokerage, "What is your specialty?"
Most sites try to find a niche to be more competitive since there are so many online brokerages. For example, SoGoTrade doesn't have a full line of products and they don't have much in the way of research and analysis, but they do offer the lowest stock trade price in the industry at $1.50 per trade. For a list of popular brokerages and what they specialize in, visit our 2008 Online Brokerage Rankings.

Ask your online brokerage How dependable is your web site?
You want a site that won't experience frequent glitches or crashes and that is relatively easy to navigate.

Ask your online brokerage Where can I find a list of all your trading costs and fees?
Fees vary widely.

I recommend you check out the online brokerage reviews for site specific expenses, but here are some rough guidelines for comparison purposes. The average online stock trade is around $9.99 and the average option trade is approximately $8.99 + $0.75 per contract. Other popular assets such as Bonds and treasuries most often trade on a per yield basis, which means that brokerages include the fee in the cost quoted rather than charging a flat amount. Rather than suggesting an average trade price for mutual funds, I suggest beginners look for a broker with 500+ no-fee no-load funds and 2,500+ no-load funds.

How good is your customer service and do you have specialists?
Customer service is especially important to new online investors.

What research and investing tools do you offer that set you apart from competitors?
It's hard for beginners to determine which tools are exceptional and which tools are generic. The easiest way to begin learning which tools have become industry standard and which are exceptional is to browse the Research & Investing Tools category in a few of our individual brokerage reviews. Overall, Ameritrade was 1st in this category since they offer so many of the industry's best 3rd party research and analysis tools for free but Fidelity came in a close 2nd as a result of cutting edge products like Wealth Lab Pro.

Perks and specials?
You will be amazed at the variety of perks and specials online brokerages offer to attract new clients and reward loyalty. A favorite is Vanguard's ultra-low cost Admiral Shares which can provide a significant boost to your long-term returns. Fidelity also offers some great perks. Any Fidelity client with > $50,000 is assigned their own personal financial advisor, a perk usually reserved for high net worth individuals.

This article conveyed the good, bad and ugly of online brokerages and traditional financials planners so that you could feel confident and comfortable with your decision.

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Platinum ETF

Many consider the launches of gold and silver exchange traded funds (ETFs) to be successful so it comes as no surprise that speculation has increased about a platinum ETF. The main obstacle to such an ETF is that the market for is smaller and less liquid. So far London and Zurich look like the most likely launching grounds according to analysts of Resource Investor.

Aside from the purely speculative angle, the largest demand for platinum comes from the automotive industry (car exhaust equipment) and the jewelry sector. One of the largest suppliers, South African platinum isn't likely to exceed demand especially as governments worldwide tighten emissions standards which is expected to increase another 5% this year to 7 million ounces.

Earlier in November, platinum experienced its biggest one-day gain in 20 years and soared to an all-time high of over $1,400 an ounce largely due to the possibility of an ETF. The platinum ETF is expected to increase the metal's price between 5-15%.

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International REIT ETF

Real estate's lustre has certainly dulled recently. At least that's the case in the US. Regardless, real estate is still an important element of diversified portfolio. While may people own their own homes, I've instead decided that buying a house is not the right choice for me. Instead, I aim to keep a certain percentage of my portfolio invested in real estate investment trusts (REITs).

While domestic REIT ETFs have been available for quite some time, exposure to the international real estate market has been missing. Fortunately, the usual suspects have moved ahead with plans to fill this gap.

First to the table is State Street Global Advisers with the streetTracks Dow Jones Wilshire International Real Estate ETF (RWX). This ETF provides easy access to the otherwise hard to reach real estate market in developed and emerging markets countries. Note that a majority of the ETF focus is on developed countries such as Australia, Germany, Japan, and the UK. Also, the ETF isn't purely real estate or REITs due to regulation differences in some countries. In exchange for an expense ration of 0.6%, State Street will maintain investments in 142 of the 161 stock that make up index.

In second place is Barclays Global Investors which reportedly has five iShares exchange traded funds (ETFs) in registration all tied to indexes from the National Association of Real Estate Investment Trusts. These proposed iShares would join a small number of ETFs that invest in REITs, the latest of which follows an international real estate index. I'm looking forward to this one as I seem to have developed quite a strong (unhealthy?) bias for all things Barclays.

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Russia ETF

Did you know that you can find Russia ETF options around energy, finance, consumer and technology sectors? This is not something that a lot of investors realize and most would pigeonhole the Russia ETF opportunities into only one or two of those categories.

With all of these choices, it might be difficult to know which to choose, but that is actually a much simpler issue than you might realize. One approach is consider what’s already in your portfolio and then to look for ways to fill gaps. Are you looking for overall exposure to Russia? Or are you looking to benefit from Russia’s vast natural resources and its hold on a significant portion of the global market share particularly in the energy industry? I would use such requirements to whittle down the list of ETFs to a small set that can then be examined in more detail.

Another option is to gain exposure to Russia with an ETF that focuses on the broader region. For example, Russia is part of a group of countries denoted by the acronym BRIC which stands for Brazil, Russia, India and China. Buying into a BRIC ETF could kill two birds with one stone by giving you some Russian holdings as well as holdings in other countries.

Modernization is a hot topic in the Russian economy, and it is now possible to buy into a diversity of funds in which technologies previously non-existent in the country are making a strong appearance. For instance, SPDR S&P Russia ETF (RBL) has around 20% committed to technologies, while the Market Vectors Russia (RSX) leans heavily on oil and gas instead.

For broad coverage, investors should consider the iShares MSCI Capped Russia Index Fund (ERUS) which tracks the MSCI Russia 25/50 Index which is basically the Russian version of the S&P 500.

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Are There Dangers With Investing Only In ETFs?

Rolling over a sizable ($200k+) traditional IRA from a previous employer and don't have much time to pick investments. Found a collection of 12 ETFs that result in much more diversity than just the S&P 500 (small vs large; international vs US; value vs growth). Not interested yet in bonds since I still have 20+ years until retirement. Figure the ETFs will minimize annual expenses vs mutual funds. I do plan to rebalance annually using a discount broker and review prospectus information. My question is if this all seems reasonable or if I'm missing something about ETFs or good portfolio management practices in general that I should reconsider before I dive in.

Adam J answered:
Nope, that's entirely reasonable. That strategy will cover you against anything but a massive depression (which you have plenty of time to ride out) or a sizeable planetwide catastrophe (in which case your IRA will be the last thing you'll be worrying about).

And I'm not betting on the depression--while I could see a recession or two, advances in biotech, nanotech and computer science should keep the market moving upward at a solid pace.

Zenthema answered:
I don't see anything wrong in ETF's as long as you watch and trade them. Money in the stock market is at risk. You can't just let it sit..things go up and also down. You need to monitor prices and also get some
education in trading.

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Energy ETF

It doesn’t take an experienced investor to recognize the potential in almost any energy ETF. Why not? Just consider that there are environmental movements as well as financial indicators that all seem to point towards an energy ETF as an almost "sure thing" which now that I've said guarantees a decline!

For example, a natural gas ETF is something that is going to inevitably yield some impressive returns simply because the industry is positioned to expand and grow by more than 60% within the next two decades.

Also consider that almost all professional investors and market experts are suggesting that all portfolios should contain some sort of energy investments, and that an energy ETF is a great way to get the proverbial foot in the door.

This is because the authorized participants can usually get their investors involved in large energy companies and also with smaller firms too, and usually all in the same fund. This means that a startup alternative supplier may be included in a portfolio that also has holdings in a massive, global energy ETF as well. Clearly, it is this kind of diversity that is so essential to profitable holdings.

Something to remain extremely mindful of when considering any energy ETF is the fact that there should be no over-concentration within any specific sector or category. Yes, the natural gas industry may very well boom in the coming decades, but an investor should not try to benefit from this anticipated growth spurt at the cost to other options and subsector investments. My preference is to ensure that a fund is diverse and balanced which I like to believe is a reasonable approach to profit.

For instance, energy means clean energy, oil and gas supplies, and other natural resources. It is also a wise idea to understand that the ETFs might offer a great "package deal" that touch on firms of many sizes within a single segment, but there are also a few other ways to access the energy market. For instance, there are machine and equipment segments, exploration and production options, and there are the much narrower funds that focus on things like wind or solar power too.

Do a bit of research and comparison shopping when considering any of the energy ETFs. Choose only those that are clearly focusing on the future potential of the energy industry, but which are not losing out on the rapid changes happening today. Often, this means doing a bit of math to ensure that no single company or area of a fund consumes over five percent of the total portfolio – regardless of how profitable it appears.

What are some good options? PowerShares Dynamic Oil and Gas Services (PXJ), iShares S&P North American Natural Resources Sector (IGE), and iShares S&P Global Energy (IXC) are extremely popular.

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