From an investment strategy standpoint, traditional exchange-traded funds (ETFs) are designed to track indexes. While passive investing is a popular strategy among ETF investors, it isn’t the only strategy.

Passive Investing
ETFs were originally constructed to provide a single security that tracks an index and trades intraday. While the intraday trading capability is certainly a boon to active traders, it is merely a convenience for investors who prefer to buy and hold, which is still a valid and popular strategy - especially if we keep in mind the often-cited statistic that 80% of actively managed mutual funds fail to beat their benchmarks. In sum, ETFs provide a convenient and low-cost way to implement indexing, or passive management.

Active Trading

Despite indexing’s track record, many investors aren’t content to settle for so-called average returns. ETFs provide the perfect tool. By allowing intraday trading, ETFs give these traders an opportunity to track the direction of the market and trade accordingly.
While ETFs are structured to track an index, they could just as easily be designed to track a popular investment manager’s top picks, mirror any existing mutual fund or pursue a particular investment objective. While actively managed ETFs run by professional money managers aren’t available in the United States, they are already on the market in Germany.

Actively managed ETFs have the potential to benefit mutual fund investors and fund managers as well.

Because ETFs trade on a stock exchange, there is the potential for price disparities to develop between the trading price of the ETF shares and the trading price of the underlying securities. If the ETF is trading at a premium to the value of the underlying shares, investors can short the ETF and purchase shares of stock on the open market to cover the position.

With index ETFs, arbitrage keeps the price of the ETF close to the value of the underlying shares. Ideally, those selections are to help investors outperform their ETF’s benchmark index. The investors would then buy the underlying securities and avoid paying the fund’s management expenses. Therefore, such a scenario provides no incentive for money managers to create actively managed ETFs.

Conclusion
Active and passive management are both legitimate and frequently used investment strategies among ETF investors.

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Have you ever wondered, while looking at your portfolio, how things could have been a whole lot better if only you could turn back time? We’ve all made mistakes; even great investors made big mistakes at one time or another; no one is exempt.

However, there are measures you can take to somehow insure success in your endeavors. So, what then is the average investor’s biggest blunder? Surprisingly, the answer lies in a very simple situation, and that is the investor picked the right company but bought it at the wrong price. If the price isn’t right, then you’re in for a very long slow ride.

Take a look at some prominent companies; most likely you’d see the company’s earning potential is already included with the price. And so, you’re not only paying for the actual value of the stock, but also its earning potential. What happens if the returns didn’t materialize? Well, since you invested your money in a well-positioned company, you’d probably still be earning, but it won’t at all be exciting.

We are a home to some of the world’s most innovative, prominent and promising companies. However, by the time you’ve spotted a company’s potential, you’re often too late to get a piece of the cake at the right price. By this time bright forecasts and perhaps not so exaggerated claims about how fantastic the company is have already been included in the price. Most of these companies, no matter how solid they seem to be, can be found still struggling to live up to these claims!

To illustrate this point, if you invested in Microsoft between the years 1992 and 2000, you’re likely to have already multiplied your investment some 24 times. However, in the years 2000 to 2008, you’ve probably also seen that shares have fallen by greater than 46%, despite the fact that during the same period company earnings surged almost 60%.

So, the formula for success is simply buying the right company at the right price.

So how exactly are you gonna do that? You have two options: you can either look for emerging companies that you know will become a winner in the long run, or you can wait until bargain prices are offered by solid, well-established companies. Nobody ever said this would be easy, but this is most certainly the only way to go if you’re looking for really huge returns - which is why you’ve invested your money in the first place, right?

Good luck, and happy investing.

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Looking at your life 30, 40, or 50 years from now, you can hardly be sure of what’s really in store for you. You may have some idea of what it’s gonna be, but you can’t really be certain about retirement. What are you going to do when your hard earned assets have lost their value in time? This dilemma is not solely caused by market downturns or other problems such as the Social Security System.

The culprit that we’re referring to here is no other than inflation. Yes, inflation is much larger than you think. It can ruin everything you’ve worked hard for, if you’re not prepared.

Well, for starters, let us examine what inflation can do. Inflation can wreck havoc on the value of your property or wealth for that matter - little by little, year in and year out. Surely as the Earth revolves around the sun, prices will continue to rise; as time goes by, what money you have will afford you less and less.

However, you need to understand that the Consumer Price Index, being the usual gauge of domestic inflation actually warps the whole picture of inflation and its real impact. In the United States, the level of inflation is really not that far from the 7% level the rest of the world is experiencing.

If you’re the type of investor who prefers to play it safe, you will most likely invest in bonds just to escape the chaotic situation in the market. You might even put your money in Treasury Inflation-Protected Securities, but still, as inflation worsens, you will find your money leaking out each year at an alarming pace.

Unfortunately, in investment, there is such a thing as being too safe. If you put your hard earned cash in “safe” money-making securities, by the time you’re about to retire, you may find that you’ve lost the value of your investment, at a rate faster than what you thought can be the worst thing that can happen to your money.

Where then should you place your money?

What you should do is look into stocks that are swinging into the right direction, such as stocks that are closely tied to the developing economies of China, India Brazil, and Russia. This can involve investing in companies that are foreign commodities-based as well as foreign banks.

The wise investor must always be prepared to take advantage of the opportunities offered by international growth.

This just goes to show that in order to be able to curb the effects inflation you must have foreign holdings. Aside from the benefits of a diversified portfolio, there’s an even greater benefit - the promising returns of foreign stocks.

Here are some quick tips for you if you’re thinking of hiring a financial planner. You must take them into consideration before you hire one, or you could be in danger of not getting the best you can, or worse.

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Make sure they’re competent

You have to ensure that your planner has the right credentials. Refer to an earlier article of mine which shows you what a Certified Financial Planner is.

Just Investing is not enough

Remember that you want someone who can advise you on a range of financial topics including insurance and mortgage payments. Planning doesn’t end with just investments.

Know how your planner is making his or her money

You need to know how much of a vested interest a planner has in recommending a particular product. If he is getting a cut out of whatever he sells to you be wary of his advice, as it is unlikely to be dispassionate.

Check and see how well he gets to know you

You don’t want someone who is looking to push their own agenda onto you. What your planner feels are the right life goals may not be what you think are the right life goals. For example, if he feels that you need to start saving for your kids college fund, and doesn’t take your word for it that you don’t ever plan to have kids, reject him. You’re hiring him so that he can advise you on how to reach your goals, not so that he can decide your goals for you.

Ok, it’s finally happened. Your dream has come true, and your unheard of rich spinster aunt has just left you with a whole pile of cash. Visions course through your mind of how you’re going to spend it, and then a thought strikes you, maybe you should invest all of it! That’s a great idea, and one that almost every financial advisor will give you.

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But your story is just starting. Suppose you want to invest all of it, why not put the whole thing in bonds that will give you a nice fixed income for life. Sounds like a good idea. Until you factor in some scenarios. Assume that you’re somewhere around 35-40 years old. The central banks, in trying to stimulate the economy have raised the interest rates, and inflation is at an all time high.

All of a sudden, your bonds are screwed. They returns barely keep up with inflation, and the prices skydive. This of course is because of the reverse relationship between interest rates and bonds.

Far better is to think of the long term, and invest the majority of it in stocks systematically. This will build a nice little nest egg for you in the long term, and will mean that you will get returns that are two or three times better that those of stocks. If you’re young, you can easily absorb the risk, and rest happy that you’ve done the really smart thing.

Some might think that stacking your cash under your bed while you sleep is a good idea to hedge yourself against risk. Well, it might be far more risky avoiding risk all in all as this may not meet your financial goals and it might not even beat inflation. Hedging yourself with risky asset classes could not only mean giving your portfolio a way to minimize exposure to risk but also a way to perk up your portfolio that has long been following the market’s mood.

1.       Currency Futures

One of my closest relatives, my aunt to be exact, moved to the United States to be a Registered Nurse. She is now retiring with her husband in Canada with all those US Dollar denominated income. In times where the greenback is getting hit hard, is it a nice idea to not protect her income with the dollar’s weakness?

A way to protect your portfolio from currency depreciation is hedging yourself by buying other currency as well. If you were to hedge yourself against the weakness of the greenback by buying Euros back then, you could have sold the Euro Dollar at a high of 1.60 to the US dollar a long time ago.

2.       Short Selling

Short-Selling is definitely not for everyone. As the risk for capital loss is endless, and the reward measured by how close the company is for de-listing or chapter 11, short-selling could be a rewarding way to: Bail you out from your wrong sizing of position, or a way to reduce your position to a very comfortable level.

It might be too early to tell, but it might seem that Dow’s technical picture is starting to gain some short momentum. A large gap at the Moving Average Convergence/Divergence is manifesting while as you can see, the momentum is starting to slow down. Is it a flag and penchant formation? Or a sideways movement manifestation? Let the market and the traders judge on how Industrial America is heading.

It’s a well known fact that Money is only as useful as other people think it is. During times of inflation, people feel that it’s worth less, and 20 years from now, a single unit of currency will be worth far less than it is today.

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However, that’s not the case with natural resources like oil and food. This makes them fairly reasonable long term bets when you want to stabilize your portfolio. If anything, over the very long term, oil prices simply have to keep going up, if for no other reason, than that oil is becoming more scarce, and the demand for oil is increasing.

But if it’s such a great idea, why isn’t everyone doing it? It seems that most people should be betting on oil already if it’s such a great idea. The reason is, that no one can predict what is going to happen to the prices, since they typically rise and fall in response to factors other than simple demand and supply.

It’s an interesting option to keep at least a small part of your savings into natural resources like oil, and companies that deal in agriculture. Of course you can’t depend on them, but the indications are, that they will be providing your portfolio with some much needed stability, albeit at somewhat lower return rates.

However, you can be sure, that over the long term, your oil stocks are just going to keep rising.

Just a short while back, when the US economy was on an upswing, there were huge stories about private equity doing very well. People were funneling cash into companies, and were earning huge returns, as they took the brunt of the risk.

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All this was very nice when the days were good. But now, with the credit crisis, no one wants to advance money anymore, since no one is sure that assets are going to be liquid. So what does this mean for companies that have raised huge amounts of capital, and don’t really know what to do with it? It’s difficult to do business that rely on credit, when there is no credit to be had in the first place.

One possible strategy that has been taking root among smart guys, is that they are starting to buy back the loans that they took at a discounted rate, taking advantage of the fact that the market is really bad at the time.

This is like a second harvest, where you have the benefit of the first loan, and now, when you have the ability to do so, get a profit from the second discounted loan as well!

It makes your head spin, but then, this is probably why some people are simply richer than others…they’re smarter.

Even though the dollar seems to be doing well, you can’t feel that it’s problems are over. In an article about the Weakened Dollar, David Ellis feels that it might be too early to celebrate. Even though exports benefit from this, imports really take a beating, and it can hurt the economy, and even boost inflation.

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So what can you do to battle this situation? According to George Mannes of Money Magazine, the best thing that can be done, is to invest in Foreign Funds. He says, that since the dollar has been steadily losing ground against other major currencies like the Yen, the Pound, and the Euro recently, the best thing to do is to invest overseas.

However, he also cautions that most people hear rumors about certain stocks, and keep pulling out and reinvesting. This, as he points out, is called ‘Chasing Performance’, and can really hurt your investments. The idea, he says, is to put your money into certain overseas funds, and then keep it there. He goes on to say, that putting 20% of your money into foreign funds is more than enough, and even suggests Vanguard overseas funds to invest them in.