Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Top Six ETFs Active Investors Should Know

Stock-Markets / Exchange Traded Funds Aug 13, 2009 - 07:41 AM GMT

By: Money_and_Markets

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleRon Rowland writes: Every week in my Money and Markets column, I try to show you how to boost your portfolio by using exchange-traded funds (ETFs). Today I’m giving you an assignment: Know your ETFs.


Specifically, I want you to get familiar with six of the most popular ETFs that track key stock market benchmarks. You need to know their ticker symbols by heart … they’re the bread and butter in your ETF shopping cart.

These six ETFs are large and actively traded; in fact, even with more than 800 other ETFs available it’s not unusual for this small group to account for almost half the value of all ETF trading in the U.S.

Now I’m NOT saying you should buy any of my bread and butter ETFs right now. My point is that if you want to be a successful investor, it’s a big help to know what’s available. If you do, you’ll be able to react more quickly when the time is right.

Ready to get started? Here we go.

Bread and Butter ETF #1: SPY

SPDR Trust is the granddaddy of all ETFs. Introduced in 1993, the SPY (that’s the ticker symbol) was the very first U.S.-listed ETF and tracks the S&P 500. This index of 500 large-capitalization stocks is a standard benchmark for the U.S. equity market.

When you buy shares of SPY, you get an instant portfolio of 500 domestic stocks covering every industry sector. Financials, technology, health care, energy … they’re all in there!

No wonder, then, that when big investors want to get instant, diversified market exposure, they often turn to the SPY. But you don’t have to be a millionaire; you can buy SPY shares even if you only have a few hundred dollars.

Bread and Butter ETF #2: QQQQ

PowerShares QQQ used to be called the “Nasdaq 100 Tracking Stock” until the Nasdaq honchos decided to spin off their ETF business to PowerShares.

This can be confusing, so read closely: The name of the ETF is PowerShares QQQ, with three Q’s. The ticker symbol is QQQQ. That’s four Q’s. Clear enough? Obviously someone wants to keep us all on our toes.

In any case, the QQQQ is based on the Nasdaq 100 Index. Note that this is not the same as the Nasdaq Composite Index that you typically see quoted in the news media. The Nasdaq 100 is a sub-set of the Composite, consisting of the 100 largest non-financial stocks in the index.

Back in the 1990s, the Nasdaq was home to many small technology companies — a few of which grew much bigger. That legacy survives in the Nasdaq 100, which is heavily tilted toward technology stocks. In fact, many traders look at it as nothing more than a large-cap tech benchmark.

QQQQ is heavy on technology stocks.
QQQQ is heavy on technology stocks.

If you want exposure to banks, real estate or insurance stocks, don’t bother with the QQQQ. You won’t find them there. Nor will you find the blue-chip companies that call the New York Stock Exchange their home. But if you’re after a highly liquid, volatile trading vehicle, the QQQQ is hard to beat.

Bread and Butter ETF #3: DIA

The DIAMONDS Trust follows the Dow Jones Industrial Average, which is probably the best-known stock market proxy in the world.

Unfortunately, the Dow is also mostly useless as a benchmark, at least in my opinion, and so are products like the DIA that attempt to follow the Dow.

I’ve used the DIA from time to time since it came out in 1999, but it has three big problems …

First, like the Dow, it’s very narrow with only thirty stocks. That simply isn’t enough to reliably represent the U.S. industrial economy, as the Dow purports to do.

Second, the DIA excludes some key sectors like transportation and utilities. Dow Jones publishes separate indexes for those groups.

Third, the Dow and the DIA are weighted by the share price of the component stocks rather than the market value. This was advantageous back in the days when you had to calculate things on the back of an envelope, but now it’s just outmoded.

Despite these issues, there are times when the DIA can come in handy. For instance, if you’re looking for an actively-traded proxy of mega-cap stocks, the DIA might be a good pick.

Bread and Butter ETF #4: IWM

The IWM is the iShares Russell 2000 Index Fund. What’s the Russell 2000? You already know the answer if you’re a fan of small-cap stocks.

Each year, Frank Russell Associates ranks all the stocks in the U.S. by their market value. Chop off the top 1,000 biggest stocks and consider the next 2,000. That’s the Russell 2000.

IWM captures the small fry stocks.
IWM captures the small fry stocks.

These are relatively small companies — but that’s the whole point! When the U.S. economy is booming, small-cap stocks usually lead the way higher. And the IWM lets you buy hundreds of tiny stocks in one simple trade.

The IWM should be a staple item for almost every investor. It’s easy to jump in and out as the economy fluctuates, and you get plenty of diversification. There’s no better way to play the domestic, small-cap stock market.

Bread and Butter ETF #5: EFA

The iShares MSCI EAFE Index Fund is international because it’s based on the Europe, Australasia and Far East Index published by Morgan Stanley Capital International.

I know that’s quite a mouthful. Let me break it down for you: The EAFE Index is designed to represent the entire developed world, excluding the U.S. and Canada. It includes Western Europe, Australia, Japan — the countries with modern stock markets and banking systems (in contrast to the emerging markets, which we’ll get to in a minute).

France is part of the EFA portfolio.
France is part of the EFA portfolio.

The list of countries in the index can change. Recently MSCI promoted South Korea and Israel to developed-market status, and stocks from those countries were added to the index and to the EFA.

The EFA is useful as a way to round-out a portfolio that already includes enough U.S. stocks. Say you own the SPY and the IWM, but you want to have exposure to the rest of the world. Add the EFA to the mix and you’re almost there.

I say almost because there’s one final piece …

Bread and Butter ETF #6: EEM

The EEM is the standard ETF if you want to trade emerging markets. These are places that only recently established economic ties with the rest of the world and are growing quickly. Markets like Brazil, Russia, India and China are good examples.

MSCI produces an Emerging Markets Index as a benchmark for these markets, and the EEM lets you trade that index. This is a really handy fund because it’s often difficult and expensive to buy individual stocks in emerging markets.

The EEM is a quick and easy way to allocate some of your portfolio to emerging markets. Keep it on the tip of your tongue for the next time you’re ready to make such a move.

Express Check-Out For Active Investors

There you have them: SPY, QQQQ, DIA, IWM, EFA and EEM. These are the six ETFs every investor ought to know. Get familiar with them. Add them to your watch list, and be aware of how they could fit into your portfolio.

Best wishes,

Ron

P.S. I’m now on Twitter. Please follow me at http://www.twitter.com/ron_rowland for frequent updates, personal insights and observations about the world of ETFs.

If you don’t have a Twitter account, sign up today at http://www.twitter.com/signup and then click on the ‘Follow’ button from http://www.twitter.com/ron_rowland to receive updates on either your cell phone or Twitter page.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in