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ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing
Lawrence Carrel
DESCRIPTION
Praise for ETFs For The Long Run
“As the title of the book suggests, ETFs are going to be an increasingly important reality for a broad class of investors in coming years. This book offers the reader real understanding of this growing force in our economic lives.”
—Robert J. Shiller, Arthur M. Okun Professor of Economics at Yale University, Co-founder and Chief Economist at MacroMarkets LLC
“ETFs for the Long Run is a fascinating read. A seasoned financial industry journalist, Lawrence Carrel does an excellent job of highlighting exchange traded funds’ meteoric rise in popularity over the last few years. A terrific book for anyone looking to grasp the ABCs of ETF investing.”
—Jerry Moskowitz, President, FTSE Americas Inc.
“ETFs for the Long Run provides a unique combination of a detailed history of the development of ETFs, a clear explanation of the sophisticated mechanics of ETFs, an assessment of investors’ choices amongst this dynamic product area, and unbiased recommendations for appropriate portfolio allocation to these efficient investment tools. Lawrence Carrel has done investors and the industry a great service in pulling these four elements together in a highly readable and often entertaining book.
—Steven Schoenfeld, Chief Investment Officer, Global Quantitative Management, Northern Trust, and Editor, Active Index Investing
Despite the incredible growth of exchange-traded funds (ETFs) and the fact they’ve been on the market for fifteen years, some investors are still either unaware of the effectiveness of ETFs or unsure of how to use them in their investment endeavors.
That’s why respected ETF expert and journalist Lawrence Carrel has written ETFs for the Long Run. Filled with in-depth insights and practical advice, this reliable resource puts ETFs in perspective and reveals how they can help you profit in both up and down markets.
Page by page, Carrel takes you through the ins and outs of ETFs, including their history, the tax benefits and minimal charges associated with them, and the fundamental differences between ETFs and other types of investments. He also provides you with the resources and tools needed to trade ETFs and build your own ETF portfolio.
You may have heard about ETFs while researching other investments or speaking with an investment advisor. If you want to learn more about them, this book will provide you with a clear understanding of what ETFs are, how they work, and how they can be used to create a low-cost, liquid, and diversified portfolio.
ABOUT THE AUTHOR
LAWRENCE CARREL, as a senior writer, took over the weekly ETF and mutual fund columns at TheStreet.com in 2007. Prior to that, he created SmartMoney.com’s “ETF Focus” column, a weekly look at the ETF industry from the individual investor’s point of view. Before joining SmartMoney in 1999, Carrel was a founding member of the Wall Street Journal Online, where he covered the stock market, edited breaking news, and was one of the writers of the “Cyber Investing” column. Carrel holds a bachelor’s degree in applied economics and management and communications from Cornell University.
TABLE OF CONTENTS
Preface ix
Acknowledgments xiii
Chapter 1 Etfs—The Newfangled Mutual Funds 1
How ETFs Stack Up against Mutual Funds 2
Greater Flexibility 3
Lower Fees 4
More Tax Efficient 5
Greater Transparency 6
Precise Allocations 6
Investment in Alternative Asset Classes 7
One Caveat 7
Summary 8
Chapter 2 Etf History Lesson: How A New Type of Fund Was Born 11
A Short History of the Amex 13
The Father of the ETF 17
Philly Strikes First 18
Back to the Drawing Board 21
Along Came a Spider 26
The Birth of an Industry 27
Let’s Do It Again 29
What Tangled Webs We Weave 30
Building a Business 33
Shine On, You Crazy DIAmonds 34
Arachnophobia? 35
Wedding Bells 35
The Biggest ETF Launch 37
All in the Family 41
The First Assault 45
If You Can’t Beat ’Em, Join ’Em 46
Builders and Bonds 47
Free Again 49
Chapter 3 The Evolution Of The Etf 51
The Importance of a Broadly Diversified Portfolio 53
The Appeal of Investment Companies 55
Types of Investment Companies 56
Types of Mutual Funds 58
Running a Mutual Fund 60
The Creation of an ETF 63
Summary 67
Chapter 4 Index Fund-Amentals 69
Why an Index? 70
Fund Management Options 72
The Rise of the Index Funds 76
The Big Index Companies 79
Indexes from the Stock Exchanges 82
Actively Managed ETFs 84
Summary 84
Chapter 5 Fee Bitten 87
Wall Street Produces Vintages 87
Looking for Low Management Fees 89
Summary 92
Chapter 6 the better mousetrap: how can etfs charge so little? 95
Transparent Costs of Mutual Funds 96
Hidden Costs of Mutual Funds 105
The Creation Unit: How They Make ETFs So Cheap 110
So Long, Transaction Costs 114
So What Costs Do ETFs Have? 119
Why Would I Ever Buy a Mutual Fund? 123
Summary 127
Chapter 7 The New Indexers 129
Missed Opportunity 132
Unfair Fight 136
BONY Builds a BLDR 137
The Name Is Bond 138
Rydex Rides In 140
Vanguard Makes a Splash 142
There’s Power in Them There Shares 144
Mutual Fund Scandal Helps ETFs 145
PowerShares Becomes a Powerhouse . . . and Other Important Developments of 2005 147
The Buy-Out 148
Opening the Floodgates 149
The Fundamentalists 155
Grow, Baby, Grow 163
Summary 168
Chapter 8 The Etfs That Aren’t Etfs: Etps, Etvs, And Etns 171
You’ve Got a HOLDR to Cry On 174
Exchange-Traded Notes 176
Commodity-Based ETVs 180
Money Makes the World Go ’Round 199
Summary 204
Chapter 9 Putting The “Trade” In Exchange-Traded Funds 217
Discount Brokers 219
The Actual Trade 220
Going Long to Go Short 226
Options on ETFs 229
Summary 232
Chapter 10 Building Your Own Etf Portfolio 235
The Simplest Portfolio 237
Assessing Your Risk 237
Strategic and Tactical Asset Allocation 241
Foundation Portfolios 248
Not Following the Herd 258
Tax-Loss Harvesting 265
Hiring an Investment Adviser 267
Summary 269
Chapter 11 The Future Of Etfs 273
The NYSE-Amex Merger 274
Specialists and Seed Capital 275
Actively Managed ETFs 279
Entering the 401(k) Market 281
In Conclusion 283
Appendix : How To Decide Which Etfs Are Best For You 285
Notes 289
About the Author 300
Index 301
REVIEWS
“This book should go a long way to helping not just investors but top-notch financial professionals…” (Research Magazine)
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