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Using Exchange Traded Funds – Part 2

Aug 06 2008

Today’s post continues Part 1 with a further explanation of this rapidly-growing alternative to the mutual fund. In my initial post I explained that ETFs

are created by financial institutions in large blocks that can be freely converted into underlying securities
are transparent, meaning that the underlying securities are publicly disclosed on a continuous basis
trade continuously on financial exchanges at prices that generally move closely with the underlying securities
are generally liquid, reflecting the liquidity of the underlying securities
are usually (but not necessarily) linked to a securities index
tend to have low management costs

These are generalizations, and …

Using Exchange Traded Funds – Part 1

Jul 29 2008

In the last four years or so, there has been explosion of newly created exchange traded funds (ETFs) in the financial marketplace. What are these investment products, and how are they different from the more familiar mutual funds?

Figure 1 shows the growth in both the number of exchange traded funds available and the amount of money invested in them. Although the ETF world is still dwarfed by the $11 trillion mutual fund industry, ETFs have clearly taken off on a growth spurt. Exchange traded funds were originally introduced to provide an investment vehicle with certain advantages over mutual funds.…

Parking Your Cash

Jul 17 2008

If you have a longer-term CD that is now coming to maturity, you’ve probably been disappointed to discover how much interest rates have dropped since you last locked in your CD rate. What are the best options for those with short-to-medium-term cash to invest these days?

My first observation is a warning: you should scrutinize closely any investment that is not a straightforward money market fund or CD. Why? Because there are quite a few short-term cash “alternatives” being touted right now; among these are a variety of ultrashort bond funds, bank loan funds, and exchange-traded notes.

With interest rates …

Some Days You Get the Bear, and Some Days the Bear Gets You

Jun 28 2008

Wall Street is licking its wounds this weekend, no doubt, after being pretty badly clawed by what is almost certainly a bear market. In the coming days you’ll see all sorts of articles offering you free advice, e.g. identifying “Bear Market Stocks You Should Buy Now,” providing lists of the mutual funds into which you should put all your money, and so forth. What should you do?

First of all, if I may borrow a phrase from the Hitchiker’s Guide to the Galaxy, “Don’t panic.” If you’re an investor, you should already have expected that the markets could drop, because …

Buffett’s Bet

Jun 18 2008

Legendary investor Warren Buffett has made an interesting wager with the management of a New York hedge fund. Buffett is betting that over the course of ten years, the hedge fund won’t be able to outperform a passive S&P 500 index fund after fees are considered.

The bet – each side is putting up $320,000, to be held by a third party and invested in a zero-coupon Treasury bond for ten years – is Buffett’s way of ridiculing the high fees charged by hedge funds. Protégé Partners, the other party in the wager, runs a fund of hedge funds. …

Category - Investing