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ETFTrends.com Publisher Tom Lydon offers tips for investors considering adding ETFS to their portfolios.
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-- industry is booming ladies and gentlemen.
Looking for a place for your money this were a lot of people have been putting -- investor supported more than sixty billion dollars into the side.
And it seems like a no brainer right David but before you buy into the ETF market we've got -- says there are three very important tips.
Every investor should know before buying so Tom -- Global trends investments CEO joins us -- let's get into it Tom what are these three tips to keep in mind before you go ETF.
Right -- well first it's important understand 99%.
Of ETFs are meant to.
Mirror on underlying index we cannot only -- the price -- -- yeah yeah.
But also every fifteen seconds you get the price of that underlying index so comparing the price of the index.
To the price of the bid ask spread and -- TF is very important make sure you're paying the right price.
-- The thing -- -- -- -- jumped out of me is that you never buy at the at market price.
You always you always set a limit order on these things because they're very setting it at -- really put yourself at risk of losing a better deal you could get.
That's right -- again ETFs trade like stocks.
The market makers -- -- -- -- spread.
You're at the mercy of the market makers -- -- set a market price so understand what the underlying index value is and then you're able to set a limit border.
Based on what that value we understand that underlying security howdy -- get the details of the -- yeah.
Yeah that the details of the pricing of the underlying index is called the indicative value in most cases.
You can put the ticker symbol of the ETF and then the dot IV.
And get that underlying index value.
In some cases you can go directly to the website.
Of the each -- providers and they'll get that you regularly as well.
Okay so explain the difference or rather why -- -- me up preferring ETF over mutual fund.
Well there are a lot of reasons first of all you know what the underlying indexes.
It's transparent.
The tax efficiency and how they -- it's liquid there's a lot of shares traded in and out.
And -- most importantly today it's the fees with the average actively traded.
Mutual fund -- did manage mutual fund charging a 120 basis points or one point 2%.
And they average ETF charging 25 basis points.
That's a huge difference especially when eight out of ten actively managed mutual funds underperform their benchmark so today.
You've seen that just in the last year close to a 140 billion leave.
Actively with manage mutual funds on the equity side.
And you've seen over trillion dollars in the last three years going to bonds bond related funds in -- yes.
People don't have confidence in in these market conditions each yes provide a little bit more transparency.
For lesser fee and and more confidence for -- -- -- let's talk about some of these ETF bond funds.
And we've got a range from the most risky which not surprising called junk in fact it's the symbols started ticker symbol is.
5%.
Return that's extraordinary all the way down to a more conservative investment grade corporate bond fund.
LQ -- so describe these different funds.
Sure at well the whole premise here David is joke isn't the -- -- used to be corporate America is actually pretty good shape.
They're sitting on three trillion dollars in cash but KN HYG.
Have lower grade corporate bonds and they're offering some pretty attractive yields at these prices with a lot less volatility so.
When money market funds or treasuries are paying.
Yeah rates here's a way to make.
Very attractive yields on the corporate side if you want high quality.
LQD provides.
Very high quality corporate bond returns for over 4%.
Very attractive again that could not -- put all your money market money in there there surely is volatility.
But -- surely can enhance your yield to would just put in a small.
Portion well Tom why don't -- thanks for the free seminar on ETS appreciate your time here now since top line.
Isn't global friend that -- with a negative vote.
