Tag: ETF Investing Strategy

This Is Why You Are Losing To The S&P 500

Posted on by Matt Thalman

You recently looked at your very diversified portfolio and compared it to the return of the S&P 500 (SPY), and to your shock, you are underperforming the market. You start to wonder how that can be. You own quality companies and have held their own in 2020 if not even produced a nice return. You also own an excellent mixture of industries, whether it's through individual stock holdings or Exchange Traded Funds.

You are well diversified and have produced a good return over the years and stayed within the S&P 500. But now, all of a sudden, the market is bouncing your performance. Well, shockingly, this may not be because your portfolio isn't good. You haven't been diligent enough following along with your holding's performance and business strategies in the future.

It very well likely has nothing to do with something you may have or have not done. It is likely, the way the S&P 500 is structured and how your portfolio isn't structured.

The S&P 500 is structured by market capitalization. That means the largest companies from a market capitalization standpoint, in the S&P 500 carry more weight in the portfolio than companies that are smaller in terms of market capitalization.

For example, Apple (AAPL) is the largest company in the S&P 500, with a market capitalization of $2.13 trillion and has a 7.06% weighting in the S&P 500. The smallest company in the S&P 500 is Coty Inc. (COTY), which has a market capitalization of $2.83 billion and a weighting of 0.003679% in the S&P 500 index. Continue reading "This Is Why You Are Losing To The S&P 500" →

Own Tesla Without All Of The Risk

Posted on by Matt Thalman

If you are like most investors, you have been watching the historic, mind-blowing run Tesla has had in 2020. Or maybe you didn't realize that Tesla Inc. (TSLA) is up more than 429% since the start of 2020. Yes, you read that correctly, Tesla is up more than 400% during a time when most companies are struggling due to the pandemic and business shutdowns the country dealt with back in the spring.

But, after seeing that sort of performance, you must be asking yourself one of two questions. First, can this continue? And is it worth the risk of buying Tesla, at let's say an all-time high, and having the stock roll-over on me days or weeks after dumping money into it?

Well, yes, Tesla can theoretically continue to run higher. I am not saying that it will or that it will not. What I am saying is, is that yes, it could continue running higher. But to the point of whether it is worth the risk, well, the same can be said. Tesla could roll over tomorrow and lose 50% in a matter of days or weeks.

So, the real question is, "how can I buy Tesla without taking on so much risk"? Continue reading "Own Tesla Without All Of The Risk" →

Gold ETFs Setting New Highs

Posted on by Matt Thalman

During the final days of July, Gold hit new all-time highs just below $2,000. The record run higher for the precious yellow metal, and for most of the precious metals has been in large part caused by the worldwide pandemic. As investors become nervous about the future, many find safe harbor in gold and other hard asset metals.

The bull market will likely continue as long as the pandemic and world economies struggle to gain traction. But, if we see a vaccine that protects against Covid-19, the price of gold will likely begin to fall as investors move back away from safe investments and back into equities, bonds, and other higher-risk – higher growth investments. When the rally ends, well, that’s, of course, the trillion-dollar question and one that I can’t help with. However, I can point you in the right direction of what to invest in regardless of which way you think the price is headed.

The big dog in the gold Exchange Traded Fund world is the SPDR Gold Trust (GLD). GLD has over $77 billion in assets under management and has been in existence since 2004. The fund charges a 0.4% expense ratio and has an average daily dollar amount volume of just over $1.76 billion, meaning it typically has liquidity. GLD tracks the gold spot price using gold bars held in vaults in London. This is an excellent option for anyone who wants the protection of gold but doesn’t want the hassle of buying actual gold bars.

The only big downside to GLD is that one share will cost you roughly $185. But there is a solution to that problem, and it’s called the SPDR Gold MiniShares Trust (GLDM). GLDM is essentially the same thing as GLD, but it holds 1/10th as much gold per share as GLD, and therefore each share costs less. As of this writing, GLD is $184.98 per share, while GLDM is $19.61 per share. GLDM tracks the spot price of gold the same as GLD, but it also has a lower expense ratio of just 0.18%. It also has much fewer assets under management of just $3.22 billion and therefore is less liquid for large orders. But again, if you want to place a large order, go with GLD. GLDM is designed for the small retail investor, not the large funds that need exposure to gold. Continue reading "Gold ETFs Setting New Highs" →

Tesla Is Going To Change The ETFs You May Own

Posted on by Matt Thalman

Watching the Elon Musk and Tesla (TSLA) show from the sidelines has been both entertaining and exhilarating even for those investors who have never owned a single share of the electric vehicle company. But for many investors, the days of watching the historic run of Tesla’s stock price from the sidelines are likely soon to be over, regardless of whether or not you like it.

Tesla’s most recent quarterly earnings report was its fourth consecutive one in which the company posted positive earnings on a GAAP basis, which now makes the automaker eligible to join the S&P 500 index. So why does this matter to the average investor?

Well, first off, if you own any Exchange Traded Fund or Mutual Fund that tracks the S&P 500, you will now own Tesla indirectly if the company is added to the index. Furthermore, Tesla is a massive company. Its market capitalization is north of $250 billion, making it one of the biggest companies in the S&P 500 if it was already a part of the index. So, not only will Tesla be a part of your portfolio, but if you have a large position in an S&P 500 tracking index, well, you will now have a lot riding on Tesla living up to its lofty valuation.

Additionally, since it is not part of the index, and if it does get added, there will be massive selling of other index components to make room for Tesla. Let me explain this point in a little more detail, because its very, very important. The S&P 500, like many indexes, is a market capitalization-weighted index. This means that the largest company in the index, currently either Apple (AAPL) or Microsoft (MSFT), accounts for around 5.7% of the index. The smallest company in the S&P 500, represents less than 0.01% of the index. And remember, 500 companies comprise the index. Continue reading "Tesla Is Going To Change The ETFs You May Own" →

Gold ETFs Setting New Highs

Posted on by Matt Thalman

During the final days of July, Gold hit new all-time highs just below $2,000. The record run higher for the precious yellow metal, and for most of the precious metals, it has been in large part caused by the worldwide pandemic. As investors become nervous about the future, many find safe harbor in gold and other hard asset metals.

The bull market will likely continue as long as the pandemic and world economies struggle to gain traction. But, if we see a vaccine that really protects against Covid-19, the price of gold will likely begin to fall as investors move back away from safe investments and back into equities, bonds, and other higher-risk – higher growth investments. When the rally ends, well, that’s, of course, the trillion-dollar question and one that I can’t help with. However, I can point you in the right direction of what to invest in regardless of which way you think the price of gold is headed.

The big dog in the gold Exchange Traded Fund world is the SPDR Gold Trust (GLD). GLD has over $77 billion in assets under management and has been in existence since 2004. The fund charges a 0.4% expense ratio and has an average daily dollar amount volume of just over $1.76 billion, meaning it typically has liquidity. GLD tracks the spot price using gold bars held in vaults in London. This is an excellent option for anyone who wants the protection of gold but doesn’t want the hassle of buying actual gold bars. Continue reading "Gold ETFs Setting New Highs" →