Market Volatility & Exchange Traded Funds

Exchange Traded Funds
The video that follows is about Exchange Traded Funds (ETF’s) and the growth seen in that type of investment product.  I have chosen this particular video for a couple of reasons.  The first reason has to do with managing expenses within our portfolios and the second is to talk about the way in which I use ETF's.  iShares used to be a separate company that offered ETF’s.  It is now owned by Blackrock and is a subsidiary of that company.  The good news about ETF’s is they are cheaper to buy and own than mutual funds.  The bad news is ETF’s are not actively managed like most mutual funds. Since ETF’s normally mirror a particular index, they don't need to be managed the same way as a mutual fund.

Expenses
Personally, I like ETF’s because they offer better diversification than individual stocks, while at the same time, controlling expenses better than mutual funds (or buying the stocks individually).  I'm not a big fan of mutual funds.  The biggest reason is their larger fees which are not justifiable given most mutual funds under-perform the markets over longer periods of time.  I have owned many, many different mutual funds in the past.  Given the growth in the popularity of ETF’s in recent years, I have long since replaced all of my mutual funds with ETF’s.

Volatility
Periodically I will also trade individual stocks, but with the volatility in the current markets, I find that ETF’s provide me with much more diversification and less volatility than simply owning a few stocks.  Since I'm not a buy-and-hold type of investor, my goal is to own whatever sector is outperforming at any point in time.

Constructing Portfolios
The discussion in the video talks about creating portfolios using ETF’s.  Personally, I think that most portfolios are way, way, way over diversified and that's largely because of the need on the part of the financial services industry to sell more products.  More product, in my experience has never improved returns.  Some would argue it's not about returns, it's about the safety of our portfolio.  By spending only a few minutes a day on my investments, I get both.  I see no reason if we're actively managing our portfolios why we need any more than the top 60 companies in the TSX.  I understand most people don't actively manage their portfolios, but I have to believe they don’t understand the magnitude of the increase in returns they can achieve in only a few minutes a day.

Less Is More
Regardless, there are a couple of portfolios listed in this video.  Some people may want to model their own portfolio on one of those shown, and that's fine for people who are not actively managing their portfolios.  Myself, I tend to largely use ETF's, rather than stocks or mutual funds, but, I hold a very small number of ETF’s at any particular time because I'm only interested in the funds that are performing.  That is why I incorporate Technical Analysis into my methodology.  The non-performers are dropped from my portfolio once they stop outperforming.  Either way, whether  you want to build a portfolio of ETF's, or you simply want to use ETF's to dampen  the volatility in the current markets, the use of ETF's will reduce expenses and, to me, provide a better alternative than mutual funds

Would you care to share your preference(s)?

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Questions for your Financial Advisor

Think Again 
In this video, David Kaufman says that the vast majority of advisors put their clients first.  Unfortunately, that is irrelevant since most people cannot tell the ones that do from the ones that don't.  He suggests we ask how the advisor is getting compensated, what future penalties we might incur and how changes to our portfolio represent an improvement to what we had before. Notice the last question for Kaufman about why we do not have a stronger standard for care in Canada.  If you believe what we have is good enough, think again.  Take the following as an example.




Be Educated
You would think we should be able to take people at their word, but the reality is we cannot afford to!  Nobody is going to take care of our money if we don't.  Please, learn how, if you don't know enough already, and please learn more even if you do!

Who's Counting?
In my own family, my Aunt switched advisors at one point, and her new advisor replaced everything in her portfolio.  The only reason, in my humble opinion, for doing so would be to have all the fees and commissions go to the new advisor.  I understand they have to get paid, but we are the only ones, currently,  who care enough to actually do anything about any abuse.  Of course there is the legal system, assuming we have any funds left and sufficient time to wait.

Anyone have stories of their own?  What did you learn from your experience?

The Four Percent Rule

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The 4% rules dictates that, given historical market returns, we can't afford to withdraw more than that amount from our retirement portfolio after age 65 when we, presumably, stop contributing to it.  From what I understand, this is before fees, and other related costs.  On that basis, does it make sense that we should be paying more than half of our potential retirement income to the mutual fund industry in the form of management expenses?  Whose money is it, anyway?  I plan on withdrawing more than 4% from my retirement portfolio.  Given the high fees relative to performance, I won't be parking my funds for retirement in any mutual fund!

Have you looked at your mutual funds, lately?