Where The Smart Investors Are Going
There are a ton of ways to invest in the market from mutual funds to exchange-traded notes (ETNs). The exchange traded fund (ETF) has become the main choice for the savvy investor because it offer low fees and less management against some mutual funds. There 1,411 funds to choose from in the US. One strategy is to try to outperform the market by investing in an ETF that has certain growth requirements to be apart of the fund. Investing in this type of fund could of earn you 145% over 10 years vs 126.9% from the S&P 500 based fund.
When I was a less smart investor, I would easily get my head turned by some fund that had a spectacular year, sometimes investing in it only to get burned — because spectacular years are often outliers. I’d also get excited about some latest thing, such as nanotechnology, not appreciating that many of these latest things can take decades to grow in earnest. Now that I’m a smarter investor, I have more respect and appreciation for simpler investments, such as inexpensive, broad-market index funds — mainly because they’re easy and tend to outperform actively managed funds.
As a word of caution read about the last ETF or ETN carefully. This is a very unique trading strategy that has yielded 55% returns on average per year over the last years. The only reason this strategy worked is that the ETN is betting on the market being calm and stable or not volatile at all. That’s how this ETN got huge returns. Now though the market is volatile swinging almost 3% each day on news out of China, Greece, and considering if the The Fed will raise rates. This ETN just shows how many different ways there are to make money in the market.
About Shaun Archer Tatum Shaun works in corporate finance in New York City. He has done financial consulting for several start-ups and has worked at several Fortune 500 companies. He has contributed several finance/investing articles on Seeking Alpha which have been published on Yahoo! Finance.