Investing

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Exponential Growth of ETFs

Patrick Eng addresses the exponential growth of ETFs.

The advent of Exchange Traded Funds (ETFs) took place a little more than 25 years ago with the creation of the SPDR S&P 500 Trust (SPY) in January 1993.  Yet, ETFs remained an obscure and little noticed trading vehicle for many years before it was embraced as a widely accepted investment choice by retail investors. An emphasis on passive investing and low-cost investment products in the past 10 years has driven the exponential growth of ETFs.

In the early 2000s, there was less than $100 billion in assets under management in ETF form. Today, that figure approaches $5 trillion. By comparison, the mutual fund industry now has about $19 trillion in assets, according to Investment Company Institute.

ETFs trade like stocks and are primarily passive investments that endeavor to replicate the performance of an index. In the case of the SPY, it is the S&P 500 index with 500 stocks bundled into a trust that trades on the exchange as if it was just one stock. ETFs are generally more tax-efficient than stocks, because they tend not to distribute a lot of capital gains and passive tracking of an index usually doesn’t require frequent trading.

There is plenty of room for the ETF market to continue to grow. In fact, ETFs have eclipsed the hedge fund market, which grew to $3.22 trillion globally in 2018, according to a report by Hedge Fund Research. Projections by BlackRock estimate ETF assets will grow to $12 trillion in the next five years.

As a potential investor in ETFs, knowing what resources you currently have and what resources you still need to reach a specific financial planning goal is critical. Picking the investment product that will help you reach that goal is the last step in the process – a step with which your advisor can assist.

Along with mutual funds and hedge funds, ETFs are investment vehicles that may help you get where you want to go.

By |August 27th, 2018|Investing|

Risks to Being Risk Averse

David Davodi explains the risks to being risk averseWhile waiting at a favorite Greek restaurant recently, I struck up a conversation with two other young men in line. We started talking about investing, and both said the stock market terrifies them.  As teenagers during the 2008 financial crises, they had witnessed their parents’ losses. As young adults today, they don’t want to lose their own money. Many young adults share their aversion to investing, according to a recent CNBC report by Sean Carter. Unfortunately, there can be financial risks to being risk averse.

Only 37 percent of Americans 35 years of age and younger invest in the stock market, according to Carter, compared to 61 percent of those older than 35. Having such little exposure to stocks at a young age can be detrimental to one’s financial future. Saving in “safer” vehicles does not always bring the growth needed to maintain the quality of life you will want or need in retirement.

While there are risks associated with investing in stocks, there also are proven strategies which help mitigate that risk. The market only does one of three things every day – go up, go down or stay the same. Investors who employ asset allocation with a diverse group of investments and maintain a long-term investment horizon typically see their investments grow over time. Having a proper financial plan also reduces stress and helps you decipher how much risk you should be taking.

It is our duty as parents, relatives and friends to help educate the young adults in our lives. Taking the time to have such conversations can be the positive impact they need to become financially successful.

By |August 13th, 2018|Current Affairs, Investing|

Successful Investors Keep Seatbelts Fastened

Successful Investors Keep Seatbelts FastenedLooking back two years, U.S. stocks have risen more than 30 percent. There have been occasional dips along the way, though the rise has been pretty much non-stop. The first week of February 2018 jolted investors back to reality, as stocks fell more than 10 percent in a short period of time. The numbers themselves sounded scary. The Dow Jones Industrial Average fell 1,800 points in a few days; it was easy to forget the drop was from record heights of 26,000. Since then, markets have recovered more than half of that unnerving slide.

Successful Investors Keep Seatbelts Fastened

It’s a challenge to remain calm during a substantial market decline for some investors. Once again, we have witnessed how important it is to block out “The sky is falling!” media warnings. Emotional reactions are likely to be detrimental for investors. The fact is volatility is a normal part of investing. It is always there. It’s interesting to note that we most often see the term “volatility” used when markets fall, and yet markets are “volatile” on the upswing, too, as we have seen for a good stretch of time.

Investors are well-advised to “stay in their seats with seatbelts fastened” when things get bumpy. Intra-year market declines are common, according to academic research by Dimensional Fund Advisors (DFA). Looking back to 1979, DFA found that about half the years experienced declines at some point of more than 10 percent. Despite those significant drops, calendar year returns finished positive 32 of 37 years.

The DFA study also determined that trying to avoid short-term losses through market timing is apt to hinder long-term performance. A substantial piece of long-term stock returns comes from just a handful of up days. An investor attempting to time the market is all too likely to be on the sidelines on strongly positive days. Through the period of 1990 to 2017, missing out on only the five best days cut returns by a full one-third.

As the markets jump and jolt, try to remain seated and relaxed. Better yet, get up and do something you enjoy. Go for a walk or out to a movie, and let the markets do what they will from day to day knowing that you have a long-term plan.

By |April 16th, 2018|Current Affairs, Investing|

Keep Your Investment Portfolio on Track

In this brief video, Certified Financial Planner practitioner Mike Larriva explains how investment risk and return run parallel to one another, just like railroad tracks. To keep your investment portfolio on track, you need to keep risk and reward in balance.

To help keep your investment portfolio on track – even during erratic market fluctuations – our firm applies time-tested asset allocation and diversification principles to balance portfolio risk and return. Click here to learn more about our investment philosophy and strategy.

By |February 14th, 2018|Advisors, Investing, Video Blog|