As the popularity of exchange traded funds continues to grow, more advisors are offering model ETF portfolios as a service.
Forbes‘ Richard Ferri takes a look at this trend in his recent article The Next Big Thing: Model ETF Portfolios. Ferri offers his own “Core Four” portfolio solution that includes an all-Vanguard line-up:
Total Stock Market ETF (VTI )
FTSE All-World ex-US ETF (VEU )
REIT ETF (VNQ)
Total Bond Market ETF (BND)
Investment adviser Steven Goldberg provides his picks for the top exchange traded funds for 2010 on Kiplinger.com.
Goldberg belives that the market will reward shares of the biggest and strongest companies this year and, within that category, the faster growers among them.
Goldberg’s ETF portfolio for 2010 includes:
55% Vanguard Total Stock Market ETF (VTI)
10% Vanguard Mega Cap 300 Growth ETF (MGK)
20% Vanguard Europe Pacific ETF (VEA)
10% Vanguard Emerging Markets Stock ETF (VWO)
5% Vanguard REIT Index ETF (VNQ)
For more diversification, Goldberg recommends adding bonds with funds such as:
SPDR Barclays Aggregate Bond (LAG)
iShares S&P National AMT-Free Municipal Bond (MUB)
Money Magazine’s undercover financial planner recently answered the question How to Make Money in ETFs (and how not to).
The undercover planner believes that financial advisers are not big fans of ETFs and regard them as a threat. With ETFs, individual investors can create a simple, low-cost portfolio that beats the pants off professionally designed plans. Why pay advisors 1.5% to 2% a year to do something that you could manage yourself?
The Mole recommends using ETFs that own the whole market at the lowest cost and have the greatest tax efficiency such as Vanguard Total Stock Market (VTI), Vanguard FTSE All-World Ex-U.S. (VEU) and Vanguard Total Bond (BND).
A Money Magazine reader recently posed the question – ” I don’t understand why ETFs are better than mutual funds.”
In the article The best (and cheapest) funds around, Money’s undercover financial planner compares and contrasts index mutual funds and ETFs. The Vanguard Total Stock Market ETF (VTI) is matched up against Vanguard’s comparable mutual fund to illustrate the differences.
In highlighting the differences between mutual funds and ETFs, the mysterious financial planner gets most points right.
However, they miss some important negatives aspects of mutual funds including tax inefficiency, the secret nature of mutual fund holdings and the fact that investors are forced to trade with the mutual fund management company at a price that is only revealed after the fact.
New York Times reporter Tara Siegel Bernard provides a primer on ETFs in her article Exchange-Traded Funds: What You Need to Know.
Bernard points out that many people like exchange-traded funds, or E.T.F.’s, for the same reasons they like index funds: they provide easy access to broad spheres of the market, while keeping costs and taxes low.
She recommends the Vanguard Total Stock Market ETF (VTI) and the Total Bond Market ETF (BND) as a prudent way to wade into investing waters with ETFs.
She also points out that investing in any fund with less than $50 million in assets is not advisable.
Money Magazine’s recent series of tips to make “lemons into lemonade” includes some suggestions for swapping positions to take tax write-offs while maintaining market exposure.
Tip 3 is to “Harvest some tax write-offs”. The tip is based on a move called a tax swap where you sell a losing fund and reinvest the proceeds in a similar one. The tax swap generates tax savings while keeping you invested pretty much as you were so you’re ready for a rebound.
As an example, Money suggests trading a U.S. large-cap fund like the Vanguard 500 or the iShares SPDR S&P 500 (SPY) for the Vanguard Total Stock Market Index (VTI).
