On our most recent radio show, we discussed an area of investing that, unfortunately, seems to be a relative unknown to many investors and even professional investment advisors – alternative assets.  By alternative assets, we’re referring to investments like gold, commodities, and real estate.  Far too many investors are missing these critical components in their portfolios – components which can offer diversification benefits and serve as inflation hedges.  Part of the problem is that, up until a few years ago, many of these asset classes were unavailable to everyday investors or simply too difficult to invest in.  If you wanted to invest in oil, for example, you had to be prepared to play the futures markets or store barrels of oil in your backyard.  With the proliferation of ETFs and other similar exchange traded products, investors can now easily and cost effectively access alternative assets such as oil and build a truly diversified portfolio.

We also discussed some of the specific alternative asset exchange traded products to consider for your portfolio including DJP, IAU, and VNQ.  If your advisor has you in a cookie-cutter portfolio of only stocks and bonds, listen to our full show here to learn more about how ETFs and The ETF Store can help you open up an entire new world of investing.

On our most recent radio show, we delved into an area of investing that some people may find intimidating – investing in bonds (or fixed income).  Our experience is that many people understand what a bond is, but they may not know exactly where to begin when deciding which bonds to invest in.  During our broadcast, we discussed the current bond market in general and more importantly, why investors should strongly consider ETFs for the fixed income portion of their portfolio instead of trying to select individuals bonds or use actively managed fixed income mutual funds.  Using either of the latter two options is typically a recipe for underperformance.

Passively managed funds like ETFs, which track bond indexes like the Barclays Capital US Aggregate Bond Index, can be significantly cheaper than actively managed mutual funds and avoid the risk of manager underperformance.  Gaining broad fixed income exposure very inexpensively, while minimizing the risk of manager underperformance, is the winning combination that we look for at The ETF Store.  We also discussed some specific bond ETFs that you can consider for your portfolio including BND, TIP, MUB, and PCY.  Listen to the full show here to learn more about investing in fixed income ETFs.

On our most recent radio broadcast, we explained why you should consider consolidating all of your investment accounts under one roof if you have accounts with multiple firms or advisors.  While this strategy can make sense in some cases, particularly for high net worth investors, it can be a huge detriment for the majority of people.  Chief among the many concerns of this approach is a lack of an overall investment plan.  It can be extremely difficult to have a well-rounded, properly diversified portfolio if you have too many cooks in the kitchen.  And this is to say nothing of the various fees, mess of statements, multiple account logins, and various calls from advisors that come with this “strategy”.

If you’re someone who has investment accounts scattered across town, it’s time to round them up and put a real investment plan in place.  We explained how The ETF Store can help you do this by combining your investments under a single custodian (such as Charles Schwab) and implementing a customized investment strategy across all of your accounts, potentially with much lower costs (and fewer headaches) than you currently have.  Listen to the full show here to learn more about why you should consider consolidating your investment accounts with one firm and how this could make tracking your investments so much easier.

But wait, it gets worse.  Not only do investors get this severe underperformance with actively managed mutual funds, but they also get to overpay for this gross underperformance.  A recent article from smartmoney.com provided an excellent graphic depicting this.  The below chart from the article shows the money that five of the largest mutual funds out there is raking in from investors and more importantly, how these funds are performing (or not) relative to their competition:

On our most recent radio broadcast, with tax day 2012 looming, we explained how ETFs can reduce your tax bill.  Because of their legal structure and minimal trading, ETFs typically distribute very little, if any, capital gains to investors.  In contrast, many mutual funds distribute capital gains – sometimes even if the mutual fund is down for the year!

So, why is this case?  Take the following example:  Let’s say there’s a mutual fund shareholder that wants to sell their mutual fund shares because they need cash to buy a house.  The mutual fund manager may need to sell shares of stocks held by the fund to raise cash to meet this shareholder redemption request.  When the mutual fund manager sells shares of stocks owned by the fund for a gain, the mutual fund is required to distribute those gains to all mutual fund shareholders.  So to recap, if you’re a shareholder of the mutual fund and another shareholder redeems their mutual fund shares, you may be penalized with a taxable capital gain distribution even though you didn’t do anything.  That hardly seems fair.  And what’s worse, these capital gain distributions are “phantom gains” in that the share price of a mutual fund is reduced by the amount of the capital gain distribution.  So net-net, shareholders haven’t gained anything other than a tax bill.

Contrast that with ETFs where a shareholder wanting to raise cash can simply sell their shares on the stock exchange with no impact to you.  There are instances where ETFs may reconstitute or rebalance holdings, thus generating a capital gain distribution, but those instances are rare.  Recent data from Morningstar on capital gain distributions showed that over the last five years, looking at the large blend fund category, active mutual funds paid out capital gain distributions equal to 1.92% of the fund value while ETFs paid out 0%.  That’s a big difference come tax time.

We also discussed tax loss harvesting strategies with ETFs and talked about some portfolio construction considerations when using exchange traded products.  Listen to the full show here to learn more about reducing your taxes by using ETFs.

On our most recent radio show, we discussed the importance of minimizing your investment costs and explained why, unfortunately, many brokers are effectively incentivized to push expensive mutual funds in your portfolio.  An easy way to combat these commissioned brokers, many of whom are more concerned about their financial future than yours, is to use an independent Registered Investment Advisor (RIA) who uses passively managed investments such as ETFs.  The ETF Store can be the alternative to your money-grabbing broker – we’re an independent, fee-based RIA that focuses on building highly diversified, low cost portfolios using ETFs.

We encourage everyone to call their advisor today and have them explain to you exactly what you’re paying for your investments and their investment advice.  You might be unpleasantly surprised at what you find out.  Learn more about how to reduce your investment costs by listening to our full show here.

On our most recent radio show, we discussed the recent headlines dominating the financial news including the Dow Jones Industrial Average finally crossing over the 13,000 mark, the potential bursting of the “bond bubble”, the signs of life in the housing market, the stunning performance of Apple stock, and the upcoming presidential election.  In addition, we examined how several ETFs are responding to these headlines and provided some thoughts on how you might position your portfolio.

We also answered several of your questions, including an interesting inquiry on whether it’s better to invest in the precious metals ETFs (such as GLD and SLV) or the related mining ETFs (GDX and SIL).  Listen to our full show here.

Greg Smith, a former executive director of investment banking giant Goldman Sachs, recently wrote an op-ed piece in the New York Times where he said that several managing directors of the company commonly referred to their clients as “muppets” (which is slang for “stupid people” in Britain, where Smith worked).  When discussing the culture at Goldman, Smith said:  “To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”

Smith also talked about how he thought employees advanced their careers at Goldman:  “What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.”  In English:  get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman.  Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”

Finally, Smith said:  “I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

Frankly, the arrogance shown by some of the larger financial institutions comes as no surprise to us.  A primary reason why we founded The ETF Store was to provide everyday investors with an alternative to the money grabbing ways of larger brokerages pushing investment products simply because they get paid on them, all while demonstrating a bigger concern for their own financial future than yours.  But while Smith’s op-ed piece most certainly painted larger financial institutions in a negative light, the fact of the matter is that any size investment management or advisory firm might attempt to take advantage of you.  So, the question is “how do you avoid becoming someone’s muppet”?

A recent article on Marketwatch.com provided an excellent roadmap on how to protect yourself from becoming a “muppet”.  The main takeaways from the article include:

• Use RIAs instead of brokers.  The key point here is that RIAs have a fiduciary obligation to put your interests ahead of theirs.
• Use index funds instead of actively managed funds.  Index funds are typically much cheaper than actively managed funds and you also don’t suffer the common underperformance of actively managed funds.
• Use independent custodians to hold your investments.  This ensures that you are the only one who can access your funds and can also reduce the risk of fraud.

At The ETF Store, we are setup as an RIA, we use passively managed index ETFs in our client portfolios, and our clients’ investments are held at independent custodians Charles Schwab and TD Ameritrade.  This is all by design.  A muppet to us is Kermit the Frog, not our valued clients.

Want to better understand the importance of saving and the significant impact it has on your future retirement?  Not sure about the different types of investments available and how you should approach investing for retirement?  Would you like to better understand the pros and cons of hiring an investment advisor?  Answers to these questions, along with many others, can be found during Money Smart Day on Saturday, March 31 at the American Century Investments Building, at 4500 Main Street, Kansas City, MO.

Nathan Geraci, Chief Operating Officer of The ETF Store and Host of The ETF Store Show on KCMO 710AM, will be presenting a session from 10:00 – 11:00am titled “Saving and Investment Overview” that will cover the importance of saving for retirement, the different types of investments available, why diversification is critical, and how to choose an investment advisor.  In addition to The ETF Store’s presentation, choose from 27 other free educational sessions presented by a diverse group of organizations on a wide range of personal finance topics including “Getting the Most from Your Paycheck,” “Helpful Steps for Parents in Raising Financially Savvy Youth,” “ID Theft and Fraud Protection” and more.  A Children’s Learning Area will also be available for children and their families to participate in financial education programs throughout the day.  Lunch and snack options will be available for purchase and free on-site parking is available.

A full schedule and registration is available at http://moneysmartday.kcfed.org.

On this past week’s radio show, we discussed the importance of PIMCO’s recent introduction of its popular Total Return Fund in an ETF format (ticker symbol TRXT).  The Total Return Fund is PIMCO’s flagship mutual fund and is managed by Bill Gross, proclaimed bond king and Morningstar’s mutual fund manager of the decade.  We explained how the introduction of PIMCO’s most popular mutual fund in an ETF format is a significant acknowledgement by PIMCO that investors are moving to, if not altogether preferring, ETFs.  Traditional mutual fund companies like PIMCO have seen assets flow out of their mutual fund products and into ETFs and they’re realizing that they have to react quickly or risk getting left behind.  Some mutual fund companies were proactive and made strong entries into the ETF space years ago (think Vanguard).   Others, like PIMCO and Fidelity, sat back and essentially prayed that ETFs wouldn’t continue their explosive growth.  Now, companies like PIMCO and Fidelity are scrambling to get into the ETF space before the train leaves the station.  A few years ago, PIMCO did introduce MINT, a short-term cash management ETF, but TRXT is an entirely different commitment by PIMCO given the popularity of their Total Return mutual fund.  It should be noted that Fidelity is in the process of introducing a fairly robust lineup of more traditional, index based ETFs.

At The ETF Store, we’ve been talking about why we think ETFs are superior to mutual funds for quite some time.  It’s good to see that a mutual fund company like PIMCO and a manager like Bill Gross are finally agreeing with us.  Learn more about PIMCO’s new ETF by listening to our full show here.