In last week’s Money and Markets column, I told you about the advantages exchange-traded funds have over mutual funds. Today we’ll go a little deeper and look at the many exciting ways you can execute your investment ideas with ETFs. As you’ll see, practically all the new financial innovation is happening in the ETF niche. Mutual fund sponsors have all but given up on doing anything new and different.
The first thing I want you to understand is that an ETF is nothing more than a tool. And most of the time, ETFs do what they’re designed to do. The more important question is which ETF is a match for your goals and situation? The ETF that works for your neighbor might not be the same one that you need. Adding ETFs to your toolbox is a terrific way to implement your investment strategy.
So what are your goals? If you have a well-designed investment strategy, you’ll still need good tools to execute that strategy. And ETFs are a great way to fill up your toolbox. Just look at some of the ways ETFs allow you to invest …
Market Benchmarks: If you’re a broad-minded investor who wants to play the whole market, you can easily do it with ETFs. The iShares MSCI ACWI Index Fund (ACWI) tracks the MSCI All-Country World Index — which includes just about every stock market in the world: U.S., Europe, Asia, Emerging Markets, 46 countries in all. ACWI is one-stop shopping for equity investors.
Style Investing: Do you think small-caps will outperform? Consider iShares Russell 2000 Index Fund (IWM), which lets you buy all 2,000 stocks in this popular index with one, quick transaction. Or if you’re looking to tilt your portfolio toward value stocks, or growth stocks, or dividend-paying stocks, you have plenty of ETFs to choose from.
Sector ETFs: These are some of my favorites. You know that different industries tend to rotate in and out of favor: Technology, health care, retailers, utilities, and more. ETFs let you own the hot sectors and also give you a way to zero in on the best sub-sectors. Within the technology sector, for instance, there are ETFs that cover semiconductors, computer hardware, software, information services, networking, telecommunications and more.
International: For years investors had to use mutual funds in order to invest outside the U.S. Fund sponsors covered broad regions, but to get any more precise you had to buy individual stocks. Not any longer. ETFs now cover not only the major regions of the world — Europe, Asia/Pacific, Latin America and so on — but also many individual countries. Whether you want to buy Singapore, Switzerland, or South Africa … ETFs let you do it. Try that with a mutual fund!
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