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Investing with Exchange-Traded Funds Made Easy: A Start-to-Finish Plan to Reduce Costs and Achieve Higher Returns, 2nd Edition

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Investing with Exchange-Traded Funds Made Easy: A Start-to-Finish Plan to Reduce Costs and Achieve Higher Returns, 2nd Edition

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About

Features

ETFs continue to be one of the fastest growing investment vehicles because of their low cost and top performance

  • Revision of the first book to provide step by step instructions for a complete, self-contained investment program.
  • New chapters on commodity ETFs, using ETFs for investment income, and a new discussion of emerging market ETFs
  • Shows how to manage investments on your own with just a discount brokerage account and a few minutes of internet access to gather data every month.
  • Description

    • Copyright 2009
    • Dimensions: 6x9
    • Pages: 304
    • Edition: 2nd
    • Book
    • ISBN-10: 0-13-236009-8
    • ISBN-13: 978-0-13-236009-8
    • eBook (Watermarked)
    • ISBN-10: 0-13-700370-6
    • ISBN-13: 978-0-13-700370-9

    “Possessing a rare skill set amongst professional investors and authors, Dr. Appel has successfully managed to provide readers with the perfect mix of up-to-date details on the various types and asset classes of ETFs, crucial, tried, and true concepts of risk management, and just the right mix of backing historical data to pull it all together–all in a “user-friendly” package. Upon conclusion of this book, readers will have experienced a paradigm shift in the thought process of their own current investment strategies. Taking it to the next level and actually implementing the concepts will automatically cause readers to experience a higher level of profitability and consistency; one they might never have thought possible from the utilization of concepts in just one small book.”

    —Deron Wagner, Founder and Portfolio Manager, MorpheusTrading.com, author, Trading ETFs: Gaining An Edge With Technical Analysis

    “Today, exchange-traded funds are the most innovative and rapidly growing investment vehicles. Marvin Appel’s new book provides, in a highly readable framework, a wealth of information on what they are and–more importantly–how private and professional investors can use them to build wealth through a simple and easy-to-implement investment program”

    —C. Michael Carty, Principal and Chief Investment Officer, New Millennium Advisors, LLC

    “In the ever-expanding complex world of ETFs, Marvin Appel has cut through all the fluff and created a one-stop guide to not only using them, but using them profitably. The sections on diversification and the use of relative strength in comparing asset classes are invaluable. Individual investors and financial advisors alike will get a significant return on investment by spending time with this book”

    –Bob Kargenian, CMT, President/Principal, TABR Capital Management, LLC

    ETFs offer exceptionally low expenses, outstanding performance, and unparalleled transparency. With more than 200 new ETFs added in just the last year, for typical investors, the choices are simply overwhelming. In this fully updated guidebook, renowned ETF expert Dr. Marvin Appel cuts through the ETF marketing hype, offering a start-to-finish plan for choosing the right ETFs–today, and for years to come.

    Appel reveals what ETFs can and can’t do, explains why they’re not all equally attractive, and shows exactly how to use them to beat the market. Drawing on objective data and proven, backtested strategies, Appel shows how to quickly move into the right ETFs at the right time, consistently staying on the winning side of major market trends.

    Appel starts by explaining how ETFs work, then illuminates every facet of ETF investing: quantifying risk and reward; increasing investment income; deciding when to move into cash; and much more. This book includes new chapters on commodity ETFs, using ETFs for investment income and all new coverage of emerging market ETFs. Appel also provides a clear assessment of tax-oriented ETF investing. From start to finish, this book candidly assesses risks, costs, and rewards–helping you become an informed ETF consumer, and an exceptionally effective ETF investor.

    • Discover what today’s newest ETFs can do for you
      Get the real deal on commodity ETFs, emerging market ETFs, and more
    • Use ETFs to invest like the big players
      Drive down costs, and fully leverage diversification, Wall Street’s only “free lunch”
    • Learn what your investment advisors still won’t tell you
      The objective truth about today’s ETF’s: changing costs, risks, and opportunities
    • Build and maintain your “one-decision” portfolio–the easy way!
      Profitable investing has never been this simple
    • Derive even greater profits with proven “active” strategies
      Simple allocation strategies you can implement in just minutes

    Sample Content

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    Table of Contents

    Acknowledgments xv

    About the author xvii

    Chapter 1 Exchange-Traded Funds (ETFs): Now Individuals Can Invest Like the Big Players 1

        ETFs Are a Special Type of Mutual Fund 2

        ETFs Avoid the Expense of Fund Managers 2

        ETFs Are Traded on Exchanges 4

        ETF Investors Have Hidden Costs Through the Bid-Ask Spread 7

        The Creation/Redemption Process Keeps ETF Share Prices Close to the Market Value of the Underlying Shares 16

        ETF Performance Is Not Weighed Down by Transaction Costs 21

        ETF Shares Are Often More Tax-Efficient Than Mutual Funds 21

        Special Risks of ETFs 22

        Conclusion 23

        Endnotes 24

    Chapter 2 The Multifaceted Stock Market: A Guide to Different Investment Styles 25

        The First Decision: Stocks, Bonds, or Cash 26

        Size Matters 29

        Each Investment Style Has Multiple ETFs 34

        Conclusion 40

        Endnotes 40

    Chapter 3 A One-Step Strategy for Selecting Superior Investments: Indexing 43

        Investments That Track Market Indexes Have Outperformed Most Mutual Funds 46

        The Evidence in Favor of Indexing 47

        Indexing Has Delivered Greater Profits Than the Average Mutual Fund, Except in the Small-Cap Area 49

        How a Few Mutual Fund Managers Have Beaten the Indexes 50

        Conclusion 52

        Appendix to Chapter 3–Index Construction Methodologies 53

        Endnotes 56

    Chapter 4 Investment Risk: A Visit to the Dark Side 57

        Drawdown–An Intuitive Measure of Investment Risk 58

        A 43-Year History of Bear Markets 64

        What if Your Investment Was Not Around During a Bear Market? 70

        Example of Risk Assessment: An Emerging Market ETF 73

        Market Risks and Planning for Your Future 77

        Appendix 4A: Where to Find Quantitative Investment Risk Information 79

        Appendix 4B: Calculation of Drawdown with a Spreadsheet 79

        Appendix 4C: Volatility of Past Returns as a Risk Measure 83

        Endnotes 86

    Chapter 5 How Well Are Your Investments Really Doing? Risk-Adjusted Performance 87

        The First Risk-Adjusted Performance Measure–Annual Gain-to-Drawdown Ratio 88

        Another Risk-Adjusted Performance Measure–The Sharpe Ratio 91

        Risk-Adjusted Performance Review 94

        Conclusion 96

        Appendix 5A–Calculation of the Compounded Annual Rate of Return 96

        Appendix 5B–Calculation of the Sharpe Ratio 98

        Endnote 101

    Chapter 6 Diversification: The Only Free Lunch on Wall Street 103

        Reduce Risk, Not Profits, with Diversification 104

        Diversification versus Picking Only the Best 106

        How to Determine What Should Be in the Optimal Portfolio 107

        Example–Determining a Good Mix of Stocks and Bonds 108

        Interpretation of the Sharpe Ratio 110

        The Uncertainty of Future Investment Returns 110

        Conclusion 113

        Endnote 113

    Chapter 7 The One-Decision Portfolio 115

        A Risk-Reducing Investment Mix 116

        Indexes Used to Test the One-Decision Portfolio 119

        Performance History for the One-Decision Portfolio 119

        The One-Decision Portfolio for Less Conservative Investors 123

        ETFs You Can Use to Create Your Own One-Decision Portfolio 124

        Rebalancing 126

        Why Are Only U S Investments Included in the One-Decision Portfolio? 127

        Conclusion 128

        Appendix to Chapter 7–A Brief Discussion of the Bond Market 129

        Endnotes 133

    Chapter 8 When to Live Large: An Asset Allocation Model for Small- versus Large-Cap ETFs 135

        Why Market Capitalization Matters 136

        Trading Rules 138

        Results 139

        Real-World Implementation with ETFs 142

        Conclusion 145

        Appendix to Chapter 8–ETF Distributions and Taxes 146

    Chapter 9 Boring Bargains or Hot Prospects? Choosing between Growth andValue ETFs 151

        The Concept of Relative Strength 154

        History of Relative Strength Changes between Growth and Value 156

        Recognizing the Emergence of a New Trend Using the Relative Strength Ratio 161

        Results with Small-Cap Value versus Growth 165

        Results with Large Cap Value versus Large Cap Growth 168

        Real-World Implementation with ETFs 169

        Conclusion 171


    Chapter 10
    When Is It Safe to Drink the Water? International Investing 173

        How to Identify Whether the Long-Term Trend Favors U S or Developed-Country

        Foreign Stocks 179

        Results of Using the EAFE/S&P 500 Asset Allocation Model 182

        Emerging Market ETFs–Investing for the Future 185

        Outlook for International Investing 188

        Conclusion 189

    Chapter 11 What Bonds Can Tell You about Stocks: How to Use Interest Rates 191

        A Basic Introduction to the Bond Market 192

        Why Rising Interest Rates Have Usually (But Not Always) Been Bad for Stocks 193

        An Indicator of Rising Interest Rates 196

        Yield Curve Indicator 197

        Composite Interest Rate Indicator 203

        Conclusion 205

    Chapter 12 It’s a Jungle Out There: Selecting from Among Different ETFs with Similar Investment Objectives 207

        The Drawdown Chart–A New Tool 208

        Example 1–Small-Cap ETFs 211

        Example 2–Growth Versus Value ETFs 214

        Example 3–Utility Sector ETFs 218

        Conclusion 221

        Endnotes 222

    Chapter 13 The Ultimate ETF Investment Program for 30 Minutes per Month 223

        The Ultimate ETF Investment Program 224

        Results of the Ultimate ETF Strategy 230

        Conclusion 231

    Chapter 14 ETF Strategies for Investment Income 237

        The Ideal Income Investment–A Payout That Grows over Time 238

        If You Want High Dividends, You Have to Like Financial Stocks 239

        Where to Find High-Dividend ETFs 240

        A Unique High-Dividend Portfolio 243

        Preferred Stock ETFs 244

        Conclusion 248

    Chapter 15 The Hottest Investments Around: Commodity ETFs 251

        Primer on Commodity Investing 254

        Absentee Ownership of Precious Metals 255

        Become a Futures Trader 257

        A Virtual Commodity Investment 260

        How to Invest in Commodity ETFs 261

        The Outlook for Commodities 263

        Conclusion 264


    Appendix
    Internet Resources for ETF Investors 267

        ETF Sponsor Web Sites 268

        General ETF Web Sites 269

        Index Provider Web Sites 270

        Current and Historical Market Data Web Sites 271

        Fundamental Economic Data Web Sites 272

    Index 273

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