ETF Tactical Tilt Investing

ETF’s are index funds which are traded on a stock exchange like an individual security. They are hybrid investment vehicles that combine the trading flexibility of individual stocks, with the diversification benefits of a managed portfolio or mutual fund. These funds allow us to customize your portfolio, from over 150 ETF’s that we monitor closely, sponsored by a variety of institutions. ETF’s also have extremely low expenses, generally around 0.3% annually.

ETF’s are extremely tax-efficient due to their unique legal structure. Unlike actively managed funds, which annually accumulate taxable short-term gains and distributions to shareholders, ETF’s ordinarily only generate taxable capital gain when they are sold. Historically the average capital gains distributed as a percentage of assets is .31% as opposed to 5.9% for corresponding index mutual fund. (Source Bloomberg issue of Financial Planning Magazine.)

Our ETF Investing Strategy utilizes a more fundamental buy and hold focus, utilizing indexes like the Nasdaq or S&P500 for the long term. The benefit of investing in indexes is that they match as closely as possible the overall return of the market. This strategy is the more conservative route focusing on approximately ten ETFs around what is successful overall rather than what is the big current trend promising success.

Overall, ETFs are cost efficient, tax efficient, flexible, and provide an average 3% annual greater historical return on average than active mutual funds.

These funds are extremely liquid which allows us to “tactically” shift the allocation when we perceive risks have or are changing. This is a great enhancement to an entire portfolio as we can increase or reduce risk depending on circumstances. We can also enter into markets through a diversified index by way of an ETF that we think offers promising returns with commensurate risk.

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