Investing can be a lot of fun but it can also be (and should be!) a lot of work. My team at FEG spends countless hours poring over balance sheets, charts, and economic data to make sure our clients have the best investments for the appropriate amount of risk. However individual stocks aren’t the only game in town. Most people, when they think about investing, turn their attention to stocks, bonds, and mutual funds. What often isn’t discussed are Exchange traded funds (ETF), which provide investors with more options for their portfolio than many investors realize.
These investment vehicles trade throughout the day like stocks but have a basket of holdings similar to a mutual fund. An ETF can be viewed as a specialist while a mutual fund is more like a general practitioner. A specialist is often times an expert in a single field of medicine, whether it is the heart, brain, or bones. Each ETF has a specialty; an exchange traded fund that tracks a technology index should not be expected to one day start investing in grocery stores or oil companies.
Another difference between ETFs and mutual funds are the tax implications. Each year mutual fund companies must pass on a set percentage of that year’s capital gains to shareholders. If a stock that had been a holding within a mutual fund is sold, then the recognized capital gains from that sale are passed down to the current shareholders at the end of the year, no matter how long they have owned the fund. While ETFs are considered more tax efficient, acting like stocks, in that any capital gains are not recognized until the ETF itself is sold, this allows the investor more control over their own personal taxes.
Investors need options. Many don’t want to be pigeon-holed into just being able to allocate their assets to a handful of general go anywhere, invest in anything funds. This is one of the reasons for the increase in popularity of ETFs. However not all exchange traded funds are created equal, investors still need to be weary of the cost of owning various funds, as many ETFs track the same indices while having varying expenses.
The ugly cousin of the exchange traded fund is the exchange traded note (ETN). Although they have similar names, they are created in nearly a completely different fashion. An ETN is an investment based on a promise; unlike ETFs they do not buy or hold the underlying assets to replicate an index. According to a FINRA press release on the risks of ETNs, there is a possibility the issuer of the exchange traded note defaults, which could have an obviously significant impact on the note’s price. While ETFs have their own risks, they aren’t as harsh as many associated with ETNs.
Like all investments, there are some inherent risks that must be considered and weighed. Asking these questions and examining the perils that we are exposed to comes with the territory of allocating capital. Some are more critical than others, but being aware of them is important.
Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at bigjoe@yourlifeafterwork.com or 640-1524.
Local Business
Related Photos
-
"Big Joe" Clark
Discussion
'Big Joe' Clark: Investors have more options than they may know
- Local Business
-
-
Study reflects local hospital costs on par
It’s hard to say what’s worse — being hospitalized, or the bill that follows.
But in some places, that bill might be a bigger hit than others: Say, Monterey Park, Calif., for example, where an inpatient being treated for heart failure could expect to pay as much as $18,502 — about twice the average between Madison County’s Community Hospital Anderson and St. Vincent Anderson Regional. -
Willowcrest Park ‘first of its kind’
A vision Rob Loose conceived 11 years ago became reality Friday.
Loose, the president of Loose Funeral Homes and Crematory, christened The Gardens at Willowcrest Park, the state’s first stand-alone cremation garden. Loose and his wife Jane hosted the opening ceremony behind the funeral home and next to the new garden. -
Love note: Nothing to hate about truck stop
A detailed presentation by Love’s Travel Stops & Country Stores executives about the company’s truck stop plans at Interstate 69 and Indiana 13 Thursday night seemed to calm some — but not all — of the concerns Summerlake residents have about the project.
-
Love’s truck stop to be subject of public meeting tonight in Summerlake
Representatives from Love’s Travel Stops & Country Stores are scheduled to meet with Summerlake residents tonight to hear their concerns about the proposed truck stop at Interstate 69 and Indiana 13.
-
Ricker’s kicks off new campaign to support Wounded Warrior
Wounded Warrior Tim Senkowski and family members were joined by a very colorful character Wednesday at Ricker's to kick off a new campaign to raise funds for their home.
-
Hamburger High to close again
After less than two months, Hamburger High is closing again.
-
Anderson plans bond sale to provide business incentives
The Anderson Redevelopment Commission plans to sell approximately $5.64 million in bonds so money is available to hook other businesses like Greenville Technologies Inc. and Hy-Pro Filtration.
-
History by the Barrel highlights Alexandria heritage
Alexandria calls itself a community in motion. It will be all that on Saturday when local businesses, organizations and individuals chip in to spruce things up around town during the annual CARE Day.
-
Meridian Pay Less adding fuel center
The Pay Less grocery store at 3050 Meridian St. is adding a new Kroger fuel center.
-
Convenience stores sue for right to sell cold beer
Indiana gas stations and convenience store owners want the federal courts to overturn a state law that bans them from selling cold beer.
- More Local Business Headlines
-
