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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
- By Marvin Appel
- Published Oct 1, 2008 by FT Press.
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Description
- Copyright 2009
- Edition: 2nd
- eBook (Watermarked)
- ISBN-10: 0-13-700370-6
- ISBN-13: 978-0-13-700370-9
This is the eBook version of the printed book. If the print book includes a CD-ROM, this content is not included within the eBook version.
“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
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