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MUTUAL FUNDS SNARE THE PUBLIC IN A HIDDEN TAX TRAP!
One among many ways you lose money in non-indexed mutual funds is the tax trap. You may have to pay taxes even when your mutual fund loses money! To many people this is painfully unexpected. Here is how this counter intuitive event occurs. By...
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Mutual Fund Versus Stocks
If you have money to invest, you might contemplate investing in
mutual fund. What is mutual fund? Mutual fund is simply a
collection of stocks that are bought using money pooled from
various individual investors. Historically, average mutual...
Thomas Edison and the Stock Market
Thomas Edison and the Stock Market Thomas Edison gave his definition of insanity: “Endless repeating of the same process, hoping for a different result.” We are now seeing the stock market head down again as it did in 2000. Brokers, mutual fund...
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Stock Market Diversification
In one of my previous articles (Investing in the stock market -9 powerful tips), tip number one was:
1. Do not spread your money too thin.
My friend has a little over $200,000 invested in the stock market through 27 different Mutual funds....
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Inflation Proof Your Investment Portfolio with ETF’s
Even though inflation has been relatively quiet in the U.S. since the late 1980’s, there now appears to be some strong evidence that it may be starting to heat up again with an expanding economy, combined with skyrocketing oil and housing prices in certain key regions of the country. While the Federal Reserve has been raising key interest rates citing the threat of rising inflation, the cautious message coming out from the Feds are that, inflation is still benign and not yet a threat. Inflation is benign? Excuse me, but the cheapest gas I can find anywhere in this area is $2.23 a gallon, which is up almost 50% from last year and housing prices in my Howard County, MD neighborhood have more than doubled in the past five years.
Inflation should really be a major concern for all investors because it reduces the value of their savings over time. History has also shown that traditional investment in financial instruments, such as stocks and bonds typically fare poorly in the face of sharply rising inflation, as evidenced by the savage decline experienced during the last bout of serious inflation during the 1970’s.
Fortunately for investors, there have been quiet a bit of improvements made in the financial markets since the 1970’s, and investors now have a great deal more options available to help protect their portfolio from the scourge of inflation. One of the best and easiest ways investors can diversify their portfolio is through the use of Exchange Traded Funds, commonly referred to as ETFs. ETFs you might recall are similar to passive index based mutual funds, but they can be bought and sold in the market just like stocks. There are currently more than 170 different ETFs (and still growing!) that investors can choose from, and these ETFs
cover the full gamut from domestic stock index to fixed income, international and even real estate and commodity related.
An easy way to inflation proof your portfolio then would be to replace a portion of your portfolio holdings from domestic equity based securities, such as S&P500 type stocks and traditional bonds, with an Inflation-protected bond ETF and Real Estate or Gold ETFs.
Table 1
Inflation Protected Bond ETF:
- iShares Lehman TIPS Bond Fund (NYSE:TIP)
Real Estate Index ETF:
- Vanguard REIT VIPERs (AMEX:VNQ)
- iShares Cohen & Steers Realty Majors Index Fund (AMEX:ICF)
- iShares Dow Jones U.S. Real Estate Index Fund (AMEX:IYR)
Gold ETF:
- streetTRACKS Gold Shares (NYSE:GLD)
- iShares COMEX Gold Trust (AMEX:IAU)
By adding these alternative asset classes into their portfolio mix, investors will realize not only significant benefits from diversification as these asset classes have a very low correlation with domestic equity and fixed income assets, but protection from the risk of inflation as well. For a full listing of Exchange Traded Funds, check out the Nasdaq market website at http://quotes.nasdaq.com/asp/ETFsCompare.asp.
About the Author
Mr. John J. Lah, MBA, CFA is a Principal at Waverly Financial Group (http://www.my-finance.net), a no commissions, no product sales, Fee-Only financial advisory firm located in Ellicott City, MD, specializing in portfolio management with Exchange Traded Funds. Mr. Lah received his MBA from James Madison University in Harrisonburg, VA and is a CFA charter holder.
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