The ETF Thread

[SiRV]

Since these aren't exactly stocks, I thought I'd just create a new thread for the young DIY-type newbies that want to dip their hands in the water. ETF Hunters usually want market exposure, lower fees than those of mutual funds, less risk than purchasing individual stocks on the stock market. Another advantage is that if you pick some stable ETF's that have been around for a long time, you probably don't have to constantly go looking around for new stocks doing research etc.

So I guess first of all, since I know theres lots of newbies out here to the whole stock market / trading scene, I'll start off with an Intro. Just some basic things that I've learned.

After going through this post in its entirety, you will probably have a good idea of how lay-people generally go about investing (mutual funds/ETFs/individual stocks etc.)

First of all, Mutual funds:


Open-Ended Mutual Fund (Part 1)

Open-End Mutual Fund Redemptions | Finance | Khan Academy

Closed-End Mutual Funds | Finance | Khan Academy

Exchange Traded Funds (ETFs) | Finance | Khan Academy

More on ETFs:
Understanding ETFs - iShares ETFs
(Try to read through all 6 modules... takes 10 minutes tops)

For terms you don't understand use:
Investopedia

After you guys have gone through that feel free to post up questions, join in discussion etc. It'd be nice to keep learning more as I go also.

In the mean time, for the pros that are looking here. I found a really sweet website on building a really diversified portfolio:

Model Portfolios

Just wondering if anyone has used these strategies in the past? Or if you can provide other tips on building up a nice nest-egg for retirement, or 10-20 years down the road, wherever you are in life.

[SiRV]

Still in the midst of building the long term portfolio, nothing has been purchased as of yet (Nov 2012).

Going to post up my research here to help the newbies out. As I'm relatively new to this too (not a financial adviser or anything & not involved in the financial field at all for work), any feedback is welcome.

Firstly, I've decided that in addition to the ETF's that I'll be purchasing, I'll also be purchasing some big blue chip companies.

I've attached a photo of something I found on the web (Berkshire's top holdings). I was actually quite surprised to see that nearly 20% of Buffet's portfolio is in KO (Coca-cola co.)... and 10% in PG (Proctor and Gamble). I can understand the PG position, being in all household appliances, shaving accessories, pharmaceuticals etc. But how diversified really is coke (Coca-Cola Products - Brands Beginning with A | The Coca-Cola Company), half the products they own I've never even heard of..



Are there any other blue chip companies that anyone can suggest? Please back up with evidence and rationale.

[svelt]

I've invested into Scotia Itrade's commission free ETF promo since last year when they started it. There's 50 to choose from, listed here:

Commission-Free ETFs | Scotia iTRADE

Some of them have pretty low MERs, so with no commission fees it's better than TD e-series for simple index DRIP investment. There are a number of sectors you can get involved in and quite a few of them are quite stable with good annual dividend yields. CSD for example has an MER of 0.57 and a yield of about 5%, so it yields around 4.5% annually. Price doesn't really change on it so it's basically been my high interest TFSA for the past year (plus I think Canadian dividends aren't taxed as heavily even if you put it in a regular account). FIE has a 7.5% yield with an MER of about 1%, so for serious yield chasers who are bullish on Canadian financials it's not a bad play either.

[SiRV]

Here is a movie (54 minutes long) on why passive investing is a good option for many people. Especially if you don't have time or expertise to invest on your own. In the movie it states that even IF you do have expertise, it all boils down to your best educated bet, which, even evidenced in our own stock market thread, doesn't work for the best of traders.

Passive Investing: The Evidence - Sensible Investing

The highlights of the movie are to diversify as much as possible. Based on lots of reading I've done on the couch potato website and the financial webring website, I've built myself a nice little portfolio that looks like this:

EQUITIES
VTI
VCE

Owning these to funds will capture the entire large/small cap companies in America (VTI), and the major 100 corporations of Canada (VCE). There are more than 100 corporations in Canada, but not many more are of much significance to our economy. 100 Stocks in this fund should be more than enough to keep you diversified enough.

Owning these two funds will give you diversification of over 3000 equities. Much better than managing the 10-20 you do on your own.

REAL ESTATE
VNQ
ZRE

The real estate ones are quite interesting. Very similar to owning multiple properties and renting them out. Instead of just condo's, these funds own buildings like malls, nursing homes, shopping outlets and collect rent from corporate entities as well. VNQ is a REIT for the American Real estate(RE).. and as they are still recovering from their housing crisis, I'd assume it is a relatively safe time to start investing in this (although the best time to invest in VNQ was two-three years ago, still not too late to hop on board now). ZRE is a REIT for Canadian RE.

Passive Investing: The Evidence - Sensible Investing

Real Estate Investment Trust (REIT) Definition | Investopedia

INTERNATIONAL EXPOSURE
VXUS

Not much to say about this except that it owns over 6000 international equities in all countries EXCEPT the USA. I believe it also holds a few % points in Canada as well, so there may be some overlap with the ZCE, but nothing too significant to worry much about.

BONDS i.e. 'Fixed Income'
XRB
XBB

Bonds right now are at all time highs, and since they are based on interest rates, they are not likely (mathematically) to go much higher than current prices. However, we can never predict what is going to happen, and having a real balanced portfolio with bonds can never be a bad thing as evidenced by the past few years. Canadian long term bonds for example, in 2011, were forcast to grow 0.1% by the 'experts', however, this type of bond led the way in growth, at an astounding 18% growth!

Goes to show, like quoted in the movie, don't listen to experts, and just stay well balanced.

Market Forecasts Prove Worthless

Hope this post helps someone