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Investing with Exchange-Traded Funds Made Easy: A Start-to-Finish Plan to Reduce Costs and Achieve Higher Returns, Second Edition

Book Description

“Possessing a rare skill set amongst professional investors and authors, Dr. Appel has successfully managed to provide readers with the perfect mix of up-to-date details on the various types and asset classes of ETFs, crucial, tried, and true concepts of risk management, and just the right mix of backing historical data to pull it all together–all in a “user-friendly” package. Upon conclusion of this book, readers will have experienced a paradigm shift in the thought process of their own current investment strategies. Taking it to the next level and actually implementing the concepts will automatically cause readers to experience a higher level of profitability and consistency; one they might never have thought possible from the utilization of concepts in just one small book.”

—Deron Wagner, Founder and Portfolio Manager,, author, Trading ETFs: Gaining An Edge With Technical Analysis

“Today, exchange-traded funds are the most innovative and rapidly growing investment vehicles. Marvin Appel’s new book provides, in a highly readable framework, a wealth of information on what they are and–more importantly–how private and professional investors can use them to build wealth through a simple and easy-to-implement investment program”

—C. Michael Carty, Principal and Chief Investment Officer, New Millennium Advisors, LLC

“In the ever-expanding complex world of ETFs, Marvin Appel has cut through all the fluff and created a one-stop guide to not only using them, but using them profitably. The sections on diversification and the use of relative strength in comparing asset classes are invaluable. Individual investors and financial advisors alike will get a significant return on investment by spending time with this book”

–Bob Kargenian, CMT, President/Principal, TABR Capital Management, LLC

ETFs offer exceptionally low expenses, outstanding performance, and unparalleled transparency. With more than 200 new ETFs added in just the last year, for typical investors, the choices are simply overwhelming. In this fully updated guidebook, renowned ETF expert Dr. Marvin Appel cuts through the ETF marketing hype, offering a start-to-finish plan for choosing the right ETFs–today, and for years to come.

Appel reveals what ETFs can and can’t do, explains why they’re not all equally attractive, and shows exactly how to use them to beat the market. Drawing on objective data and proven, backtested strategies, Appel shows how to quickly move into the right ETFs at the right time, consistently staying on the winning side of major market trends.

Appel starts by explaining how ETFs work, then illuminates every facet of ETF investing: quantifying risk and reward; increasing investment income; deciding when to move into cash; and much more. This book includes new chapters on commodity ETFs, using ETFs for investment income and all new coverage of emerging market ETFs. Appel also provides a clear assessment of tax-oriented ETF investing. From start to finish, this book candidly assesses risks, costs, and rewards–helping you become an informed ETF consumer, and an exceptionally effective ETF investor.

  • Discover what today’s newest ETFs can do for you
    Get the real deal on commodity ETFs, emerging market ETFs, and more

  • Use ETFs to invest like the big players
    Drive down costs, and fully leverage diversification, Wall Street’s only “free lunch”

  • Learn what your investment advisors still won’t tell you
    The objective truth about today’s ETF’s: changing costs, risks, and opportunities

  • Build and maintain your “one-decision” portfolio–the easy way!
    Profitable investing has never been this simple

  • Derive even greater profits with proven “active” strategies
    Simple allocation strategies you can implement in just minutes

Table of Contents

  1. Copyright
    1. Dedication
  2. Praise for Investing with Exchange-Traded Funds Made Easy, Second Edition
  3. Acknowledgments
  4. About the Author
  5. 1. Exchange-Traded Funds (ETFs): Now Individuals Can Invest Like the Big Players
    1. ETFs Are a Special Type of Mutual Fund
    2. ETFs Avoid the Expense of Fund Managers
    3. ETFs Are Traded on Exchanges
    4. ETF Investors Have Hidden Costs Through the Bid-Ask Spread
    5. The Creation/Redemption Process Keeps ETF Share Prices Close to the Market Value of the Underlying Shares
    6. ETF Performance Is Not Weighed Down by Transaction Costs
    7. ETF Shares Are Often More Tax-Efficient Than Mutual Funds
    8. Special Risks of ETFs
    9. Conclusion
    10. Endnotes
  6. 2. The Multifaceted Stock Market: A Guide to Different Investment Styles
    1. The First Decision: Stocks, Bonds, or Cash
    2. Size Matters
    3. Each Investment Style Has Multiple ETFs
      1. Midcap ETFs
      2. All-Cap or Total-Market ETFs
      3. Growth and Value ETFs
    4. Conclusion
    5. Endnotes
  7. 3. A One-Step Strategy for Selecting Superior Investments: Indexing
    1. Investments That Track Market Indexes Have Outperformed Most Mutual Funds
    2. The Evidence in Favor of Indexing
    3. Indexing Has Delivered Greater Profits Than the Average Mutual Fund, Except in the Small-Cap Area
    4. How a Few Mutual Fund Managers Have Beaten the Indexes
    5. Conclusion
    6. Appendix to Chapter 3—Index Construction Methodologies
      1. Example of Index Construction—Equal Weighting
      2. Example of Index Construction—Price Weighting
      3. Example of Index Construction—Capitalization Weighting
      4. The Newest Indexing Scheme—Free-Float Weighting
    7. Endnotes
  8. 4. Investment Risk: A Visit to the Dark Side
    1. Drawdown—An Intuitive Measure of Investment Risk
      1. How to Use Drawdown
    2. A 43-Year History of Bear Markets
    3. What if Your Investment Was Not Around During a Bear Market?
    4. Example of Risk Assessment: An Emerging Market ETF
    5. Market Risks and Planning for Your Future
    6. Appendix A to Chapter 4: Where to Find Quantitative Investment Risk Information
    7. Appendix B to Chapter 4: Calculation of Drawdown with a Spreadsheet
    8. Appendix C to Chapter 4: Volatility of Past Returns as a Risk Measure
    9. Endnotes
  9. 5. How Well Are Your Investments Really Doing? Risk-Adjusted Performance
    1. The First Risk-Adjusted Performance Measure—Annual Gain-to-Drawdown Ratio
    2. Another Risk-Adjusted Performance Measure—The Sharpe Ratio
    3. Risk-Adjusted Performance Review
    4. Conclusion
    5. Appendix A to Chapter 5—Calculation of the Compounded Annual Rate of Return
    6. Appendix B to Chapter 5—Calculation of the Sharpe Ratio
    7. Endnote
  10. 6. Diversification: The Only Free Lunch on Wall Street
    1. Reduce Risk, Not Profits, with Diversification
    2. Diversification Versus Picking Only the Best
    3. How to Determine What Should Be in the Optimal Portfolio
    4. Example—Determining a Good Mix of Stocks and Bonds
    5. Interpretation of the Sharpe Ratio
    6. The Uncertainty of Future Investment Returns
    7. Conclusion
    8. Endnote
  11. 7. The One-Decision Portfolio
    1. A Risk-Reducing Investment Mix
    2. Indexes Used to Test the One-Decision Portfolio
    3. Performance History for the One-Decision Portfolio
    4. The One-Decision Portfolio for Less Conservative Investors
    5. ETFs You Can Use to Create Your Own One-Decision Portfolio
    6. Rebalancing
    7. Why Are Only U.S. Investments Included in the One-Decision Portfolio?
    8. Conclusion
    9. Appendix to Chapter 7—A Brief Discussion of the Bond Market
      1. Credit Risk
      2. Interest Rate Risk
      3. Intermediate-Term Bond ETFs
    10. Endnotes
  12. 8. When to Live Large: An Asset Allocation Model for Small- versus Large-Cap ETFs
    1. Why Market Capitalization Matters
    2. Trading Rules
    3. Results
    4. Real-World Implementation with ETFs
    5. Conclusion
    6. Appendix to Chapter 8—ETF Distributions and Taxes
  13. 9. Boring Bargains or Hot Prospects? Choosing between Growth and Value ETFs
    1. The Concept of Relative Strength
    2. History of Relative Strength Changes between Growth and Value
    3. Recognizing the Emergence of a New Trend Using the Relative Strength Ratio
    4. Results with Small-Cap Value versus Growth
    5. Results with Large Cap Value versus Large Cap Growth
    6. Real-World Implementation with ETFs
    7. Conclusion
  14. 10. When Is It Safe to Drink the Water? International Investing
    1. How to Identify Whether the Long-Term Trend Favors U.S. or Developed-Country Foreign Stocks
    2. Results of Using the EAFE/S&P 500 Asset Allocation Model[3]
    3. Emerging Market ETFs—Investing for the Future
    4. Outlook for International Investing
    5. Conclusion
  15. 11. What Bonds Can Tell You about Stocks: How to Use Interest Rates
    1. A Basic Introduction to the Bond Market
    2. Why Rising Interest Rates Have Usually (But Not Always) Been Bad for Stocks
    3. An Indicator of Rising Interest Rates
    4. Yield Curve Indicator
      1. Interest Rates and the Implied Economic Forecast
      2. The Rules for the Yield Curve Indicator
      3. Track Record for the Yield Curve Indicator
    5. Composite Interest Rate Indicator
    6. Conclusion
  16. 12. It’s a Jungle Out There: Selecting from Among Different ETFs with Similar Investment Objectives
    1. The Drawdown Chart—A New Tool
    2. Example 1—Small-Cap ETFs
    3. Example 2—Growth Versus Value ETFs
    4. Example 3—Utility Sector ETFs
    5. Conclusion
    6. Endnotes
  17. 13. The Ultimate ETF Investment Program for 30 Minutes per Month
    1. The Ultimate ETF Investment Program
      1. Step 1: Diversification
      2. Step 2: Decide Whether International or U.S. Stocks Are Favored; If U.S. Stocks Are Favored, Evaluate the Interest Rate Climate
      3. Step 3: Select the Best Investment Style from Large-Cap Value, Small-Cap Value, Large-Cap Growth, or Small-Cap Growth
    2. Results of the Ultimate ETF Strategy
    3. Conclusion
  18. 14. ETF Strategies for Investment Income
    1. The Ideal Income Investment—A Payout That Grows over Time
    2. If You Want High Dividends, You Have to Like Financial Stocks
    3. Where to Find High-Dividend ETFs
    4. A Unique High-Dividend Portfolio
    5. Preferred Stock ETFs
    6. Conclusion
  19. 15. The Hottest Investments Around: Commodity ETFs
    1. Primer on Commodity Investing
    2. Absentee Ownership of Precious Metals
    3. Become a Futures Trader
    4. A Virtual Commodity Investment
    5. How to Invest in Commodity ETFs
    6. The Outlook for Commodities
    7. Conclusion
  20. Internet Resources for ETF Investors
    1. ETF Sponsor Web Sites
    2. General ETF Web Sites
    3. Index Provider Web Sites
    4. Current and Historical Market Data Web Sites
    5. Fundamental Economic Data Web Sites
  21. Financial Times Press