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Investing in Fixed Income ETFs

Nate Geraci May 9, 2012

Listen to The ETF Store Show every Saturday at 4pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

On our most recent radio show, we delved into an area of investing that some people may find intimidating – investing in bonds (or fixed income).  Our experience is that many people understand what a bond is, but they may not know exactly where to begin when deciding which bonds to invest in.  During our broadcast, we discussed the current bond market in general and more importantly, why investors should strongly consider ETFs for the fixed income portion of their portfolio instead of trying to select individuals bonds or use actively managed fixed income mutual funds.  Using either of the latter two options is typically a recipe for underperformance.

Passively managed funds like ETFs, which track bond indexes like the Barclays Capital US Aggregate Bond Index, can be significantly cheaper than actively managed mutual funds and avoid the risk of manager underperformance.  Gaining broad fixed income exposure very inexpensively, while minimizing the risk of manager underperformance, is the winning combination that we look for at The ETF Store.  We also discussed some specific bond ETFs that you can consider for your portfolio including BND, TIP, MUB, and PCY.  Listen to the full show here to learn more about investing in fixed income ETFs.

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Do You Have a Master Investment Plan in Place?

Nate Geraci April 30, 2012

Listen to The ETF Store Show every Saturday at 4pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.

On our most recent radio broadcast, we explained why you should consider consolidating all of your investment accounts under one roof if you have accounts with multiple firms or advisors.  While this strategy can make sense in some cases, particularly for high net worth investors, it can be a huge detriment for the majority of people.  Chief among the many concerns of this approach is a lack of an overall investment plan.  It can be extremely difficult to have a well-rounded, properly diversified portfolio if you have too many cooks in the kitchen.  And this is to say nothing of the various fees, mess of statements, multiple account logins, and various calls from advisors that come with this “strategy”.

If you’re someone who has investment accounts scattered across town, it’s time to round them up and put a real investment plan in place.  We explained how The ETF Store can help you do this by combining your investments under a single custodian (such as Charles Schwab) and implementing a customized investment strategy across all of your accounts, potentially with much lower costs (and fewer headaches) than you currently have.  Listen to the full show here to learn more about why you should consider consolidating your investment accounts with one firm and how this could make tracking your investments so much easier.

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The Mutual Fund Way – Pay a Lot, Get a Little

Nate Geraci April 25, 2012

If you’ve been following our commentary, whether through our blog or on our radio show, you know that a favorite subject of ours is the underperformance of actively managed mutual funds.  In case you missed it, approximately 84% of actively managed US equity mutual funds underperformed their relative S&P benchmark in 2011.  That’s right – 84%!  Over the past three and five years, 56% and 61%, respectively, of actively managed US equity mutual funds have underperformed their benchmark.  Here’s a full chart of the carnage from SPIVA:

But wait, it gets worse.  Not only do investors get this severe underperformance with actively managed mutual funds, but they also get to overpay for this gross underperformance.  A recent article from smartmoney.com provided an excellent graphic depicting this.  The below chart from the article shows the money that five of the largest mutual funds out there is raking in from investors and more importantly, how these funds are performing (or not) relative to their competition:

If your investment advisor is putting you in these expensive, underperforming mutual funds, it’s time to ask them why.  You might be surprised by their answer.  At The ETF Store, we use inexpensive ETFs that typically deliver the benchmark performance of the asset classes we wish to invest in.  It may sound strange to some people, but we believe it’s best to avoid underperforming, expensive investment products.  As the saying goes, “A fool and his money are soon parted”….
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