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What are the best index ETF's?

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July 18, 2011 – Comments (20)

I'm not a fan of index investing, but I talked my dad into taking his money out of the hands of "financial advisors" or whoever, and he's asking me how to invest with a minimum of effort. I told him to get broad index ETF's covering the gamut of asset classes and every stock in the market, you get the idea. Then he asked me to be more specific, and I'm passing the buck to you all.

Which index/asset class ETF's are the best, and why? Or if my premise is wrong, explain.

20 Comments – Post Your Own

#1) On July 18, 2011 at 9:48 PM, SultanOfSwing (96.94) wrote:

SPY - S&P500, QQQ - NASDAQ, IWM - Russell 2000.  Not saying these are the "best".  Just very widely held and thus track to their underlying indices very well.

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#2) On July 18, 2011 at 10:06 PM, rd80 (98.25) wrote:

For the 'every stock in the market,' I think you'll have a tough time finding anything with a lower expense ratio than Vanguard's Total Market Index (VTI).

I'm not as up to speed on bond funds, but will toss out a T. Rowe Price open end fund we have in my wife's IRA - spectrum income - symbol RPSIX.  It's a income-oriented fund of funds holding a broad range of bond funds along with some of T. Rowe's equity income fund. The underlying funds are actively managed; T. Rowe Price doesn't layer any expenses beyond those of the underlying funds. Barron's profiled it in the 9 July issue if you have access to that or there's still a copy at the library.

With these two, about the only stock or bond class not represented is international.  And, given how much of most big, US company operations are outside the country, that's arguably covered.

As always, this (or anything else on an internet blog) should not be considered investment advice.

As stated, my wife holds RPSIX in her IRA, but no other interest in or connection with either fund mentioned.

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#3) On July 18, 2011 at 10:36 PM, Bays (30.13) wrote:

Yep, Vanguard has the lowest MER.

http://opinion.financialpost.com/2010/09/22/etf-cost-leader-vanguard-unveils-7-etfs-with-8-beeps-mer/

I also like the monthly dividend paying ETFs from iShares.

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#4) On July 18, 2011 at 10:39 PM, Bays (30.13) wrote:

I think index ETFs should be apart of eveyones portfolio!

Especially the "safe" portion of your portfolio.  There really isnt much excitement picking out individual bonds.  I've owned junk ETFs, and short term Canadian corporate bond ETFs for quite some time.  I've gotten a decent return out of them.

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#5) On July 18, 2011 at 10:43 PM, shamapant (80.78) wrote:

My favorite index ETF is PFF, ishares US Preffered Stock Index-Very low volatility so you don't go through that much emotional strain, and it gives you monthly dividend payments totalling to an annual 7.21% dividend yield, if you're looking for an automatic way to invest that pretty much takes the cake. The Russel Value Index(IWD) and The Russel Growth Index(IWF) are my favorite general ways to get stock market exposure as well. Of course, the S&P 500, SPY, is fantastic.

Shamapant 

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#6) On July 19, 2011 at 1:40 AM, ikkyu2 (99.26) wrote:

I enjoy stock picking.  If I did not, I would do the following:

- Decide on an asset allocation strategy.  One example of an asset allocation choice is 70% stocks, 30% bonds.  There are many different choices and reasons to suit different people and different circumstances.

- Put my money at Vanguard and invest it in their lowest-fee index funds (not ETFs) to approximate my asset allocation.

- Rebalance annually. 

Even the best ETFs generally charge around 0.75% per year of the assets under management.  The worst lose you more than 5% per year.  Compare Vanguard's S+P 500 index fund; it costs 0.07% (not 7%, but seven hundredths of one percent) per year to own that fund.  Best deal in all of investing if you ask me. 

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#7) On July 19, 2011 at 2:25 AM, TMFBabo (100.00) wrote:

For lower volatility, I like:

XLP: Consumer Staples ETF
XLU: Utilities ETF

I personally believe each sector should have similar returns long haul unless specifically helped by long-term megatrends. In that case, why not go for less volatile sectors? If not the specific sectors, I do agree with the others on Vanguard's low expense ratios:

VOO: Vanguard S&P 500 ETF
VTI: Vanguard Total Stock Market ETF

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#8) On July 19, 2011 at 10:42 AM, Slider08 (47.08) wrote:

If I had to use ETFs, I'd generally stick with the basic Vanguard ones, and I probably wouldn't stray from that much in this situation. The only ETF I'm really interested in, though, is NFO, which is based on Sabrient's insider sentiment index. I generally don't like the more exotic ETFs out there, but this one actually makes sense to me. Based on its (brief) history and its methodology, it looks like it'll outperform most of the time but lag some during downturns.

Here's a Seeking Alpha article discussing it:

http://seekingalpha.com/article/240442-gauging-guggenheim-insider-sentiment-etf-s-performance

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#9) On July 19, 2011 at 2:10 PM, vriguy (68.22) wrote:

VEU covers the non-US stock universe pretty well, just as VTI covers the US stock market.  Both are from Vanguard and have very low expenses. Bonds? I simply do not think them a good investment today. CDs are probably a better deal today.

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#10) On July 19, 2011 at 2:16 PM, anchak (99.84) wrote:

Vanguard - Don't look beyond them.....

 

VTI and VEU - should be the core holdings. BND for Bonds.

 VWO for Emerging Markets

They have diversified since also into various  other sectors and bogies....

 

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#11) On July 19, 2011 at 2:29 PM, FleaBagger (29.19) wrote:

I am definitely interested in foreign markets as well. I think confining one's investing to the U.S. is stupid, unless one has reason to believe that the entire rest of the world is going to underperform, which 1) I don't think is the case and 2) is too information-dependent of a judgment call for my dad to keep making going forward (that is, dad just wants a set it and forget it approach to investing for the future).

Three questions: does anyone have any int'l ETF's besides VEU? Do VTI and VEU include small caps? And what about commodities?

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#12) On July 19, 2011 at 2:33 PM, PhoenixGroup (24.31) wrote:

Any good ETFs for german and european equities - specifically tech (or just general)?

Any good ETFs for Asian tech (or just general)?

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#13) On July 19, 2011 at 3:16 PM, anchak (99.84) wrote:

Both VEU and VTI include Small Caps  - however they are cap weighted - VTIs closest bogie is the Wilshire 5000.

 VEU is FTSE Global ....

International Small Cap - you have to go to other firms - like Wisdomtree etc.

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#14) On July 19, 2011 at 3:17 PM, anchak (99.84) wrote:

PhoenixGroup  - there is a country ETF under Ishares for almost everything

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#15) On July 19, 2011 at 4:06 PM, anchak (99.84) wrote:

Vanguard has a Metals and Mining ETF - but no dedicated Energy ETF - if I am not mistaken.

You can use DBC or some equivalent for a Commodity ETFs.

 

Here's a good site

 

http://www.indexuniverse.com/ecs

 

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#16) On July 19, 2011 at 4:12 PM, anchak (99.84) wrote:

Wow - I didn't even know -this existed in Vanguard

 

Vanguard FTSE All-World ex-US Small CapVSSVanguardEquity: Global Ex-U.S. - Small Cap

 

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#17) On July 19, 2011 at 6:09 PM, vriguy (68.22) wrote:

Vanguard has an energy etf - VDE

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#18) On July 19, 2011 at 9:07 PM, Valyooo (99.34) wrote:

I like MDY and JCE. they move like the spy but dont fall as hard

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#19) On July 20, 2011 at 12:43 AM, GundersonGroup (28.49) wrote:

For commodity and currency ETFs traded in London.

 http://www.etfsecurities.com/en/welcome.asp

 

When constructing a portfolio of ETFs for your father make sure you consider hedging life risks based on where he is at in his life.

Medical ETFs if he is nearing or in retirement as medical costs will not be contained any time soon. Commodity ETFs for inflation as the government has and will be playing around with CPI for entitlement program reasons. Employment risks if he is still working but within a job/sector where skillsets are not that portable. Asset deflation risks if he has a large mortgage balance.

Talk with your father and come up with a list of items that would have a meaningful impact and invest accordingly. Remember the lesson learned in 2008 that asset classes tend to move in tandem and diversification is not always the safety net people think it is. So make small hedges against your father's life risks to provide some margin of safety without creating too large of a drag on performance should his future turn out great. Run what-if scenarios if the hedges end up losing so you know what your potential performance drag is and compare that to the projected impact on your father's life if some or all of them work.

With careful consideration I am sure the two of you can come up with a well constructed portfolio

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#20) On July 21, 2011 at 9:40 AM, lemoneater (81.77) wrote:

Good question, Flea, thanks for bringing it up. Hope your dad's investments do well. I'm certain that you will cut out a lot of unecessary fees which will be a plus at the start.

I don't know much about the world of ETF's but I'd check about dividend yields. I suspect index ETFs tend to be stodgy with little share price appreciation/ or depreciation--we hope--so at least the dividend should shine.

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