Tag: matt thalman

Why Bond ETF's May Not Be Your Best Choice

Posted on by Matt Thalman

Matt Thalman - INO.com Contributor - ETFs


One of the greatest things about the world of finance is we have so many different options when it comes to investing. We have stocks, bonds, mutual funds, ETF's, real estate, commodities, metals, currency, the list goes on. But, with all of these different options, it is difficult to navigate through what we should be investing in and what we should leave alone. Each of the different options investors have at their disposal has their own pros and cons.

With that in mind, let's take a look at Bond Exchange Traded Fund's to help determine if they are the best option for you.

Issues with Bond ETF's

First what is a bond ETF? Similar to other ETF's it is a highly liquid asset which investors can trade in and out of daily, hourly, or even by the minute. These funds hold a variety of different "bond's", based on the restrictions the fund manager has set for the ETF. For example the Pimco Total Return Active ETF (BOND) states its own restrictions as following; Continue reading "Why Bond ETF's May Not Be Your Best Choice" →

One ETF to Play the European QE

Posted on by Matt Thalman

Matt Thalman - INO.com Contributor - ETFs


While the worlds investing community continues to concentrate on what is happening in Europe, due to the recent quantitative easing recently announced by the European Central Bank, you may be wondering how you can play the situation.

What is Going on in Europe?

But before we get to how you may be able to profit, let's look at what is happening. Last week the European Central Bank announced they would buy 60 billion Euro worth of bonds each month until the end of September 2016. This will essentially put 1.1 trillion euro into the European economy in an effort to help it get moving again. The quantitative easing process injects cash into an economy (increasing the money supply) which keeps interest rates low, making it easier for consumers and businesses to borrow, in the hope they will do so and boost economic growth. Continue reading "One ETF to Play the European QE" →

Falling Oil Prices Presents Opportunity

Posted on by Matt Thalman

Matt Thalman - INO.com Contributor - ETFs


With the recent decline in the price of oil, many investors are wondering, where the opportunity is to make money from the decline? As I have stated before, my investing motto is always to keep it simple; which in this case would mean "simply buy oil stocks."

Over the past few months, the price of oil has unexpectedly fallen from over $100 a barrel to the $50 range. Neither economist, market analysts, or oil industry experts saw this decline coming. So I believe it is safe to say that no one, certainly including myself, knows were the price of oil is going in the near future. But with that being said, I think most would agree the use of oil is not going away in the near future. Oil is and will be the most widely used form of energy in the coming years, despite the rise of natural gas, solar or any other form of energy which currently exists.

The fall in the price of oil has caused oil stocks to decline. For example, Exxon Mobile (XOM) is down more than 8% over the past six months while Chevron (CVX) is off by nearly 14%. Smaller players like Anadarko Petroleum (APC) is off by nearly 22% and Pioneer Natural Resources (PXD) is off by 32% as the price of oil has fallen during the second half of the year. These types of declines have been felt throughout the industry.

One of the first and most common antidotes we are taught as investors is "buy low, sell high." When stocks fall, their price is low or at least lower than it was, which means if you believe in the company, or in this case the industry, then now is the time to buy. Continue reading "Falling Oil Prices Presents Opportunity" →

3 Reasons ETFs Are Better Than Mutual Funds

Posted on by Matt Thalman

Matt Thalman - INO.com Contributor - ETFs


For good and bad, Wall Street is constantly finding new ways for investors to attempt to grow their money. But, with all these products available for investors to choose from and a massive amount of information being presented to the average investor, it is easy to understand why so many investors still ignore ETFs and stick with mutual funds.

In most cases the average investor does not have a choice between a mutual fund and ETFs when it comes to their 401(K) plans through their employer. But for those investors who decide they want to put more money to work than just their 401(K) contributions, plowing more money into mutual funds is a bad idea for three reasons: truly knowing what your buying, performance, and cost.

Knowing What You Actually Own

Walk into any retail store in the US and pick up a any product; find the tag if it's a piece of clothing, the label if it's a drug or grocery item, or even the new Christmas toy you purchased, and you can find out exactly what was used to make that product. Depending on what the product is, there are different laws that have been put in place to protect the consumer which require the manufacturer to inform the customer of exactly what they are getting at all times.

Flip to the world of finance, unfortunately knowing what you are buying at all times is not always the case. While mutual funds are required to disclose their holdings to the public, these disclosures don't typically happen more than on a quarterly or semiannual basis. So what that means is that although you think you have purchased a large-cap growth mutual fund and that the manager must have at least 90% of the fund's assets in large-cap growth stocks, you essentially have no way of finding out if that's really were your money is invested. All the mutual fund manager needs to do is sell whatever doesn't meet the large-cap growth requirement the day before the fund's disclosure statement is put together and to investors it looks like the manager is doing exactly what he is supposed to be doing.

So why would a mutual fund manager not keep the funds in exactly what the fund's prospectus says they will do? Continue reading "3 Reasons ETFs Are Better Than Mutual Funds" →

Leveraged 3X ETFs Are Much More Dangerous Than You May Think!

Posted on by Matt Thalman

Matt Thalman - INO.com Contributor - ETFs


Due to market demand, over the past few years we have begun to see another increase in investors' use of leverage. Just ten years ago all the rage was using leverage to buy more home than one could really afford. Before that, it was the increased use of credit cards and way back in the late 1920's it was trading stocks on margin. The use of leverage has time and again blown up in the faces of those who use it at an abusive level.

So today I would like to point out some of the dangers of Leveraged ETFs or better known as 3X ETFs. But first, let's talk about why it's hard to see the danger in these investments. I believe the most glaring reason is because we have been told that ETFs, or any group of investments bundled together in order to provide diversity, is safer than buying individual stocks or investments. And that is completely true, but what makes the leveraged ETFs dangerous is the leverage itself.

Deterioration Risk

The first item to consider is what it costs the ETF to gain 3X leverage. That price is often referred to as deterioration risk. The deterioration of invest-able capital is due to the price the ETF must pay other financial institutions to buy and sell investment instruments in order to gain the 3X price movement of the underlying ETF asset. If the ETF is invested in the oil industry for example, the industry itself will have a limited number of financial instruments to invest in, and often times those instruments will have very little liquidity. The lack of supply and lack of demand for the investment therefore pushes the price of the investment higher for the ETF to purchase. In turn, and over time, that increased cost will deteriorate part of the capital being used to invest.

Daily Trading Only

The next issue is the use of leverage and how it makes returns very unpredictable, especially over long periods of time. Direxion Investments is one company who offers leveraged ETFs. On their website, as well as in the profile summary of each of their leveraged ETFs, you can find a warning to investors which reads:

"These leveraged ETFs seek a return that is +300% or -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day."

Continue reading "Leveraged 3X ETFs Are Much More Dangerous Than You May Think!" →