An index is a sampling of stocks or bonds that represent a particular segment of the overall financial markets, for example the Standard and Poor’s 500 index represents the largest 500 publicly traded companies in America.
In the past, if you wanted to have a portfolio that represented an index like the Standard and Poor’s 500, you would have needed to purchase one share of 500 companies all at different prices, which is not very practical. To simplify this process Index Funds and Exchange Traded Funds (ETFs) were created.
In the simplest terms, Exchange Traded Funds (ETFs) are funds or baskets of stocks that track indexes like the S&P 500 or the Dow Jones, etc.
The Benefits of investing in ETF’s
+ ETFs have lower expenses than mutual funds, 0.2% vs. 1.0% average management fee.
+ ETFs will accomplish predictable asset growth and achieve a consistent rate of return while taking-on less risk.
+ ETFs are more tax efficient than mutual funds. which can be a tax nightmare due to trading securities throughout the year.
+ ETFs and Index Funds provide you with the most efficient and cost-effective way to invest in the market.
When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don’t try to outperform their corresponding index, but simply replicate its performance.
By using ETFs in a managed portfolio, you are using the best of both worlds, in that one can combine active and passive strategies by actively managing passive assets.
Guardian Plus’ goal in all of our Plus+Portfolios is to maintain a high level of diversity, have low expenses, limit tax liabilities, promote transparency and to the extent possible as to avoid unpleasant surprises.
Guardian Plus’ Plus+Portfolios have many elements: equities, fixed income, hard assets, including commodities, gold, real estate, international development, and emerging markets. This wide variety of asset classes provides us the ability to not only participate in economically prosperous times, (when equities outperform), but also protect against the downside risks such as a credit contraction, debt deflation or geopolitical uncertainty.
The first step in selecting desirable index ETFs is recognizing that not all ETFs are indexes. There are over 1,200 Exchange Trades Funds (ETFs).
Some are actively managed funds susceptible to the pitfalls of high expenses and market-timing. Others are merely sponsor-selected collections of stocks meant to look like indexes, and others lack the desired diversification.
Guardian Plus’ preparatory screening process gleans out the ETFs that do not meet our criteria.
The final step of managing ETFs is through Tactical Asset Allocation which is a “top-down” strategy. Guardian Plus identifies key factors within each ETF sector to help predict the future relative performance of that sector, and then Guardian Plus will overweight or underweight the sectors based on the current status of those factors relating to the various elements within the portfolio: equities, fixed income, etc.
90% of portfolio returns are a direct result of asset allocation. At Guardian Plus we know the importance of Tactical Asset Allocation, Asset Rebalancing and Strategic Investing, all three factors work together within your Plus+Portfolio to give you the best chance of achieving your financial goals .
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