Don Miller
Investing In ETFs: How Exchange-Traded Funds Can Save You Money
High commissions and management fees, along with taxes, can really cut into your returns.
That's where exchange-traded funds, or ETFs, come in. In today's investment world, ETFs are cheaper and more tax-friendly than mutual funds.
The average expense ratio for U.S.-listed ETFs is 0.4%, compared with 1.42% for diversified U.S. stock funds.They also give you exposure to an entire industry or market with the click of a mouse.
It's one of the reasons why exchange-traded funds are quickly becoming the investment of choice for investors seeking broad market exposure.
In fact, the number of ETFs has surged over 10-fold in the last decade.
The total number of ETFs in the market grew to 1,114 by October 2011, with assets over $1 trillion, according to the Investment Company Institute.
And the ETF market will expand to roughly $3.1 trillion by 2016, according to projections from the Financial Research Corp. in Boston.
So if you're looking to diversify your portfolio and save money doing it, ETFs may be the way to go.
Here's a primer on how ETFs can work for you.
Agricultural Stocks: Fatten Up Your Portfolio on Food Price Inflation
For most Americans, the cost of food hasn't always been such a big deal.
For the better part of the last 30 years, food supplies were plentiful and the economy provided enough wealth to keep cupboards stocked.
But my how things have changed since the financial meltdown of 2008. Today, food inflation has more people concerned about the cost of groceries — and how they're going to pay for them.
Yet for investors, the same food price inflation dilemma presents an investment opportunity that is ripe for the picking.
With that in mind, agricultural stocks are where to look for the low-hanging fruit as food prices keep heading higher.
Investors Turn to TIPS as Warren Buffett Warns on Inflation
Warren Buffett last week did more than warn investors on the dangers of low interest rates and inflation.
The Oracle of Omaha also had harsh words for traditional bonds.
In a Fortunearticle Buffett went so far as to say, "Right now bonds should come with a warning label."
"They are among the most dangerous of assets," Buffett wrote, "Over the past century these instruments have destroyed the purchasing power of investors in many countries."
To prove his point Buffett labeled inflation as the primary threat to bond investors, noting it takes no less than $7 today to buy what $1 did in 1965.
Instead of bonds, Buffett recommends "productive assets," including farmland and real estate.
But he saved his highest praise for stocks, especially the stocks of companies like The Coca-Cola Co. (NYSE: KO) and International Business Machines Corp. (NYSE: IBM), that consistently deliver inflation-beating returns.
But what if you're not comfortable betting most or all of your chips on stocks? And if traditional bonds are out, where else can investors turn for inflation beating returns?
TIPS Insure Wealth Against Inflation
Enter Treasury Inflation Protected Securities, or TIPS.
Unlike regular bonds, TIPS are designed to protect your principal against the ravages of inflation.
In fact, TIPS zig when other securities zag, providing diversification and safety to your portfolio.
TIPS are considered to be an extremely low-risk investment since they are backed by the U.S. government, and their par value rises with inflation while their interest rate remains fixed.
Here's how they work.
Three Glencore Xstrata Takeover Targets: TCK, AAL, FCX
The proposed mega-merger of Glencore International PLC and Xstrata PLC will create a global powerhouse with the potential to shake up the mining industry overnight.
If completed, the $90 billion deal will form a mining behemoth with control over one-third of the global market for thermal coal, and make it the world's largest producer of integrated zinc production. It will also rank as the world's third-largest copper producer and fourth-largest nickel producer.
Basically, the merger would create a super-giant that could compete with the industry's heavyweights – BHP Billiton Ltd. (NYSE ADR: BBL), Rio Tinto PLC (NYSE ADR: RIO), and Vale (NYSE ADR: VALE) – the mining industry's "Big Three."
The merger is certain to spark volatility in the sector, according to Money Morning Global Resources Specialist Peter Krauth, an expert in metals and mining stocks who runs the Global Resource Forecast investment service.
"What observers need to understand is consolidation like this concentrates decision making," Krauth said. "The fewer participants in an industry, the more impact they have.
When output is either increased or decreased by one or more mega producers, it will also have a larger impact on world supplies, and therefore prices."
With that kind of power, the Glencore-Xstrata deal will form a goliath with the appetite – and the muscle – to swallow its weaker rivals.
Glencore Xstrata: Hungry for Mergers
Based on estimated 2011 results compiled by Credit Suisse Group AG (NYSE ADR: CS), the new company would have revenue of $211.3 billion and net profit of $7.5 billion. That kind of clout would make its stock valuable currency for more acquisitions.
Plus, both companies are led by aggressive chief executives that have a history of snapping up competitors.
Xstrata has been racking up spectacular growth through acquisitions, although lately it has focused on organic or internal growth to boost production by 50% by 2014.
Glencore, a trader of metals, minerals and oil, has said the main idea behind going public after almost four decades as a private company was to grab acquisitions.
Of course, the new company would have more going for it than sheer size and a forceful management team.
Glencore has a giant global intelligence network of 2,000 employees in about 40 countries. Many of them are traders and marketers that collect extensive data on what commodity buyers want and when.
"Glencore's network makes the CIA look like your grandmother's coffee club," columnist Eric Reguly recently wrote in The Globe & Mail. "It has been adept at forecasting commodity prices based on intimate knowledge of production, demand, regulations, political whims, transport costs and movements everywhere."
Glencore's intelligence network will likely direct it to takeover targets that have iron ore resources, an area where Xstrata currently lacks exposure.
The industry's Big Three control nearly 70% of the one billion-ton annual iron ore seaborne trade, along with contract pricing. Lately they've been dampening prices by flooding the market with iron ore, driving high-cost producers out of the business.
But their mushrooming market shares have triggered more regulatory reviews by concerned governments. That should clear the way for the new Glencore Xstrata entity to target smaller competitors without the Big Three interfering.
The Hunt for Higher Yield: Investors Pour into Emerging Market Debt
The never-ending hunt for higher yield is leading investors to bet record amounts on emerging market debt.
In just the first two weeks of 2012, governments of undeveloped economies from Asia to Africa sold more than $30.6 billion in dollar-denominated bonds according to Bloomberg News.
That's up from roughly $19.9 billion in the same period last year and the most since 1999, when Bloomberg began collecting data.
Typically, investors shun emerging market bonds during times of uncertainty in favor of "safer" assets like gold and U.S. Treasuries.
But that has started to change.
The Big Move Into Emerging Market Debt
In fact, investor demand is overwhelming supplies as orders have outstripped the amount of bonds being sold.
During a recent auction, the Philippines received $12.5 billion of orders for $1.5 billion of 25-year bonds, pushing the yield down to a record-low 5%. Indonesia sold 30-year bonds at a record-low yield of 5.375% and Colombia sold $1.5 billion of 29-year bonds at 4.964%.
Analysts say the debt crisis in Europe, along with record low yields on U.S Treasuries, has investors on the hunt.
They are now buying the debt of undeveloped nations like Indonesia, Mexico and Brazil, even though credit-rating firms rank them as more risky than their European counterparts
"What we're seeing is a re-evaluation of sovereign-credit risk, increasingly being driven more by fundamentals than by classifications," Eric Stein, a portfolio manager at Eaton Vance Corp. (NYSE: EV) told The Wall Street Journal.
According to the J.P. Morgan Emerging Markets Bond Index, investment-grade sovereign emerging-market bonds are yielding an average of 4.7%.
By contrast, Italian 30-year debt yields 7%, while Spanish 30-year debt yields 6.1%.
One reason emerging market bonds are attracting interest is…
Money-Markets, CDs, and Bonds: The Ups and Downs of Stashing Your Cash
In today's volatile markets many investors are faced with the same troublesome question – "Where should I park my cash?"
In fact, investors have withdrawn a net total of $328 billion from the stock market since 2007, according to Strategic Insight.
Ever since, a big portion that cash has been looking for a home.
It seems simple enough, but investors are finding the answer to be more complicated than they imagined…
Thanks to our friends at the Federal Reserve, interest rates are at record lows. In fact, they're so low that most investors are getting practically nothing in returns.
Meanwhile, the stock market has put on a New Year's rally, rewarding those who were willing to jump in while leaving cautious investors wondering if they're holding too much boring old cash.
However, in order to have an adequate safety net, your cash on hand should be enough to cover about a year's worth of expenses, according to Shah Gilani, a retired hedge fund manager and Editor of the acclaimed Wall Street Insights & Indictments newsletter.
"That's a good safety net," Shah says.
But no matter how much cash you hold, you still have to balance your need for higher returns against your risk tolerance.
Because whether you're thinking "safety first" or are tempted to reach for a little more yield, the choice you make might determine whether you're able to sleep at night.
Three Places to Park Your Cash
With that in mind, here's a look at three of the most popular places to park your cash.
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