ETF Prime Archive

ETF Store Show Recap – 9/24/11

Listen to The ETF Store Show every Saturday at 3pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

In this low interest rate environment, it can be incredibly difficult for investors to build a portfolio that provides yield (often provided off of bond interest and stock dividends).  Yield is especially important for individuals in retirement or close to retirement that depend on income generated from their portfolios to provide for their living expenses.  Unfortunately, many of these investors and their financial advisors have significantly increased the risk profiles of their portfolios in an attempt to chase yield and returns and, as a result, have left their portfolios ill prepared to withstand down markets like the one we’re currently in.  On our most recent radio show, we discussed our step-by-step, disciplined approach to retiree portfolios and addressed a recent article by Paul Farrell on Marketwatch that referenced a Financial Planning Association study that concluded “91% of America’s financial planners are pushing clients into riskier investments”.  Farrell keenly pointed out that “in today’s highly volatile markets advisers appear to be running as scared as their clients, chasing risky returns.”

We also discussed the significant impact that investment costs can have on a retiree’s portfolio and compared two of the largest bond mutual funds to their ETF counterpart.  We looked at American Funds Bond Fund of America, ticker ABNDX, and the PIMCO Total Return Fund, ticker PTTAX.  Both of these mutual funds track the Barclays Capital US Aggregate Bond Index.  The Bond Fund of America has an expense ratio of .59% and currently yields 3.39%.  The PIMCO Total Return Fund has an expense ratio of .90% and a yield of 2.77%.  We compared these mutual funds to the Vanguard Total Bond Market ETF, ticker BND, which tracks the exact same index as both of those bond funds and has an expense ratio of .11% and a yield of 3.25%.  In addition to a higher net yield than both of the mutual funds, BND has outperformed the PIMCO fund by more than 5% and the Bond Fund of America by over 15% over the past five years!

Investment fees can have a tremendous impact on the long-term performance of a portfolio and the majority of the time, the performance of actively managed mutual funds leaves something to be desired.  The bottom line is that high investment costs can erode your income in retirement and not having a sound investment plan in place can expose you to unnecessary risks and jeopardize your comfortable retirement.

Listen to the full show here.

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ETF Store Show Recap – 9/17/11

Listen to The ETF Store Show every Saturday at 3pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Have you ever really looked under the hood of your actively managed mutual fund to understand exactly what you’re paying for the grand opportunity to have your money invested by an underperforming manager?  On our most recent radio show, we did the dirty work for you and uncovered some startling figures.  Consider that according to Morningstar, in 2010, the average actively managed mutual fund investing in domestic large cap stocks carried an expense ratio of 1.26%, with many funds having expense ratios in excess of 1.5%.

Just for fun, we compared that with The ETF Store’s current global strategic moderate portfolio – which as a side note, in addition to domestic large cap stocks, has exposure to asset classes such as gold, emerging markets, treasury inflation protected securities, and even Latin America.  Now get this – the weighted average expense ratio of the ETFs in our global strategic portfolio is .20%!  That’s greater than a one percentage point difference and keep in mind, if you were investing in actively managed mutual funds accessing asset classes such as emerging markets or Latin America, it’s highly likely that the expense ratios on those funds would be north of 1.26%.

And, as we described on the show, this example really only tells part of the story.  In this analysis conducted by Wealthfront, when you factored in the management fee, trading commissions, non-management fee, marketing or 12b-1 fees, sales loads, redemption fees, and the opportunity cost on embedded tax liabilities, the actual cost of owning an actively managed mutual fund was greater than 3% annually!  Another analysis done by Independent Investor came to a similar conclusion as they laid out 13 separate costs of owning an actively managed mutual fund.

These fees can have a significant impact on the long-term performance of your portfolio and as we’ve covered on previous shows, the majority of the time, the performance in these actively managed mutual funds leaves something to be desired.

Listen to the full show here.

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ETF Store Show Recap – 9/10/11

Listen to The ETF Store Show every Saturday at 3pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

Think your advisor is Nostradamus and can pick the stocks or actively managed mutual funds that outperform the broader market in any given year?  You may want to reconsider that.  On our most recent radio broadcast, we answered this and several other common, day-to-day questions we receive from individuals regarding Exchange Traded Funds and The ETF Store.

A common refrain we hear from individuals is that their advisor has told them they’re accepting mediocre returns by investing in ETFs since ETFs are passively managed, indexed investments.  These same advisors believe trying to pick individual stocks and actively managed mutual funds is a better path to financial success for their clients.  Consider the following:

• Dalbar, a mutual fund research firm, found that over the 20-year period ending December 31, 2010, the average mutual fund investor achieved an annual return of 3.8% compared to 9.1% for the S&P 500 index!
• Researchers at Dimensional Fund Advisors found that from 1980 to 2008, 25% of stocks were responsible for all of the gains in the broad market.  75% of the stocks over this time generated annual losses of 2%!

On our radio show, we delved into these and several other mind blowing stats regarding actively managed mutual funds and individual stock selection and explained why your advisor may want to consider starting a hedge fund if they think they can consistently find outperformance via these investment vehicles.

We also covered a wide range of topics including explaining the importance of independent custodians, whether it is expensive working with an investment advisor, some high dividend yielding ETFs to consider, how tactical asset allocation reduces risk, and everyone’s favorite subject these days – gold.

Listen to the full show here.

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