Introducing ETF University and How the Election will Shape the Market

Welcome to ETF University

I am proud to tell you about a new website my team and I created called ETF University (ETFU.com). We created this website for one primary reason, and that is to help investors learn more about the world of exchange-traded funds (ETFs).

As you may know, I have been a passionate advocate of ETFs for many years. That advocacy has been expressed extensively in my various publications. I’ve also discussed the copious virtues of ETFs on my radio show and my weekly podcast.

Yet early this year, I realized that while I had been writing and speaking about the benefits of ETFs for some time, there still were many questions out there about ETFs, such as how they work; how you buy them; what are the advantages and disadvantages of using ETFs, etc. I also realized that there wasn’t really a single, trusted source that investors had that would answer these questions, at least not a source that would answer these questions the way I think they should be answered.

So, rather than look around for various sites to fill this knowledge void, we decided to create ETFU.com. I want you to think of ETFU.com as your one-stop source for anything and everything related to the world of exchange-traded funds.

Here are just some of the features you’ll find at ETFU.com:

• ETF News: Read all of the latest and greatest updates from the world of exchange-traded funds, including details on new fund offerings, new fund families, new fund categories and new fund strategies.
• Weekly Editorial: Here you’ll find my weekly commentary on topics such as the markets, politics, the Fed, global economic trends and just about anything driving the price of stocks, bonds, commodities and currencies.
• Weekly Podcast: Each week, I will post the audio podcast from my weekly broadcast, Doug Fabian’s ETF Strategies. This podcast includes a wrap up of all of the action in the markets that week, an in-depth look at one ETF strategy designed to help investors beat the market and a look at various topics including politics, economic policy, monetary policy, personal finance, retirement planning — or just about anything that affects your money.
• Educational Videos: We are currently in the process of producing a series of educational videos designed to teach investors all of the basics of how to invest using ETFs. Think of this series as an introductory college course on exchange-traded funds, a sort of “ETFs 101.”
• Special Reports: Here you’ll find special audio, video and written reports on specific topics related to ETFs. Planned topics include how to invest in fixed income using ETFs; which ETFs are best for getting international equity exposure; how to use commodity ETFs, etc.
• Top 10 ETF Lists: Do you want to know which 10 ETFs are the biggest? How about the 10 best-performing ETFs? What about the top 10 sector ETFs? If lists are your thing, then this featured section of ETFU.com is for you.
• ETF FAQs: Here you’ll find a list of the most frequently asked questions (FAQs) regarding exchange-traded funds, including how they work, how they differ from mutual funds and how to buy and sell ETFs.
• All-New Podcast: To go along with the new content at ETFU.com, I’ll also be doing a weekly podcast titled “ETF Success with Doug Fabian.” This weekly audio presentation will get you up to speed on the markets and will provide you with helpful hints and education on all things ETF related. Today marks “Episode 1” of the ETF Success with Doug Fabian, so be sure and check it out today.

These are just some of the current and future planned features available to readers, absolutely free, at ETFU.com. The only thing we ask of readers who want complete access to this content is to simply join us.

I strongly encourage you to join ETFU.com as soon as possible.

A Changing of the Political Guard

This week, the American people spoke, and the discontent with President Obama and the Democrat Party was heard loud and clear. Regardless of your political affiliation, it’s simply a fact that most Americans think the country is headed in the wrong direction, hence the resounding defeat handed to Democrats across the land.

The big question now is: what does a new Republican Congress mean for your money?

While it’s way too early to tell how this election might affect the stock market and the economy, what we do know is that, historically speaking, the year following a midterm election is bullish for stocks. Since 1946, there have been 17 midterm election years. On average, the return between Oct. 31 of that year and the following Oct. 31 was a whopping 17.5%.

At the very least, the trend in November (regardless of whether it’s an election year) historically is a friend to the markets. In fact, this is the Dow Jones industrial average’s second-best-performing month in the past 20 years, with average gains of just over 2%. November also marks the start of the best six-month period for stocks.

According to the Stock Trader’s Almanac, in the November-thru-April period since 1950, the Dow has posted average gains of 7.5%, vs. a gain of 0.3% for the worst six-month period which runs from May thru October.

In the latest edition of my Successful ETF Investing newsletter, I wrote about something I think is a much bigger driver of markets than any election will ever be, and that is the fervent money printing by central banks around the world.

Yes, the Federal Reserve finally ended its quantitative easing (QE) program, but Japan just initiated the biggest QE plan in history. Moreover, Chinese banks are moving to stimulate their country’s economy with easy money, as is the European Central Bank.

This all ads up to what I call the “man-made” market — a condition that I fear could come crashing down on investors who aren’t prepared well ahead of time.

If you want to find out how my subscribers are making money in this bull market — and how we’re protected from significant corrections and bear markets — then I invite you to check out Successful ETF Investing right now.

ETF Talk: Vanguard’s Low-Expense-Ratio Bond Fund

This week’s ETF Talk features Vanguard Total Bond Market ETF (BND), an exchange-traded fund (ETF) managed by Vanguard, the low-expense-ratio ETF provider. BND is a bond fund that also ranks as one of Vanguard’s largest ETFs, with $22.8 billion under management as of Sept. 30. With an expense ratio of only 0.08%, the costs for this fund are 91% lower than the average for similar bond funds.

BND seeks to perform like a broad, market-weighted bond index. To this end, BND tracks the results of an index that represents a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate and international bonds, in addition to mortgage- and asset-backed securities with maturities greater than one year.

BND has made steady progress in 2014, rising 2.49% this year. This fund also offers income-oriented investors a dividend yield of 2.55%.

BND’s top 10 holdings include only 4.66% of its total assets. As a bond fund, it has no allocations to any stocks or sectors. Its second- through fifth-largest holdings are all different United States Treasury Notes, ranging from shorter-term 0.25% notes to longer-term bonds yielding 4.75%.

Bonds can be a good way to diversify a portfolio that is primarily composed of stocks, and the Vanguard Total Bond Market ETF (BND) may be worth consideration for investors interested in this diversity, as it combines short- and long-term bond holdings at a relatively minimal fee.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Top 10 ETF FAQs

I get a lot of questions every day about ETFs. So, this week I decided to compile a list of the top most frequently asked questions (FAQs) to help investors understand the basics of ETFs and how they work. So, here you go!

1) What is an ETF?

An ETF, or exchange-traded fund, is an investment fund traded on stock exchanges. An ETF holds assets such as stocks, commodities or bonds. Most ETFs track an index, such as the S&P 500 or Dow Industrials, etc.

2) What are the advantages of investing with ETFs?

There are many advantages of investing with ETFs. The primary advantages of using ETFs include their low cost, ease of use, transparency, wide variety of choice, tax efficiency and liquidity.

3) What are the disadvantages of using ETFs?

ETFs do require some specialized knowledge to understand how to use them successfully. In some cases, they can be more complicated than mutual funds. When purchasing an ETF, you also incur a transaction fee. If you are making small purchases month after month, over time those fees can reduce your total return. There are more than 1,600 ETFs listed on U.S. exchanges, so the sheer number alone can be intimidating for some investors.

4) Where, and how, do I buy ETFs?

The purchase or sale of ETFs is done through a brokerage account. Popular national brokerage firms such as Fidelity, Schwab, TD Ameritrade and Vanguard are good choices for your brokerage account. Once you have a brokerage account, you can follow that investment firm’s instructions to buy and sell ETFs online.

5) What are the main differences between ETFs and mutual funds?

ETFs are priced throughout the trading day, while mutual funds are priced just once a day at the close of trading. ETFs are completely transparent, meaning you always know what an ETF holds. Mutual funds are only required to report their holdings quarterly. ETF purchases do involve a transaction fee, but there are no sales charges or deferred sales charges like there are with mutual funds. ETFs also are much cheaper, more tax efficient and offer far more choice than mutual funds.

6) What are some common mistakes made when investing with ETFs?

Investing involves risk, and using certain ETFs (e.g. ETFs that use leverage) can be inappropriate for some investors. Some small, i.e. thinly traded, ETFs have wide bid/ask spreads. This can cause investors to buy at a high price and to sell at a low price. ETFs require some specialized trading knowledge to sidestep these and other mistakes. Educating you on how to avoid these mistakes is one of the missions of Doug Fabian’s Weekly ETF Report.

7) Are ETFs for stocks only?

No. ETFs allow investors to allocate to stocks, specific market sectors, foreign stocks, fixed income, commodities and currencies. The growth in the number and variety of ETFs over the past several years means that almost every type of asset class that is publicly traded now is accessible with ETFs.

8) Do ETFs pay dividends and interest like mutual funds?

Yes. ETFs pass through dividends paid from stocks, as well as interest from fixed income securities, directly to shareholders. Distribution frequency varies depending on the ETF, as some ETFs pay monthly while others pay quarterly or semiannually.

9) What are the tax advantages of using ETFs?

ETFs offer greater tax advantages to shareholders than mutual funds. Because most ETFs are structured like an index fund, there is an extremely low turnover rate in the holdings when compared to mutual funds. It is the buying and selling of assets within a mutual fund that tends to create tax issues, but there is very little of that when investing with ETFs.

10) Are there costs and sales charges when purchasing ETFs?

When purchasing an ETF, you likely will incur a transaction fee that is charged by your brokerage firm. While there are no sales charges, commissions or redemption fees associated with ETFs, you likely will have to pay the small transaction cost associated with buying and selling any asset.

If you have questions about anything ETF related, just send me an e-mail.

Skeptical Election Wisdom

“Every election is a sort of advance auction sale of stolen goods.”

–H. L. Mencken

No other pundit has ever come up with better one-line wisdom than the great H.L. Mencken. Here, the journalist/commentator tells us what he thinks of elections, and I can’t say that I disagree.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about how the Federal Reserve’s ending of quantitative easing could affect the market. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

All the best,

Doug Fabian