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Burt Shulman

Among its many painful lessons, the current financial crisis provides a stark reminder that public investment pundits tend to have at best a theoretical, rather than a predictive understanding of the markets. So many of us poured so much money, not to mention faith, into the markets on the advice of these public pundits, and both money and faith took a serious beating. Some pundits do present information and perspectives we can all use to make better decisions, but recent events have once again made it clear that as a group they have little real predictive abilities. Soothsayers they ain’t — ask almost any investment “expert” point blank and they’ll admit that timing the market is generally a fool’s game, unless you’re willing to spend most of your waking hours studying and tweaking mathematical models that focus mainly on daily, even hourly time horizons — and unless you’re fully prepared to lose your shirt when things still don’t work out as planned.

For most of us — with the bulk of our investment money in 401k’s, 403b’s, IRA’s and similar pre-tax vehicles — the safest path is to start with a hard look at our bottom-line needs and goals, and our investment time horizons. Time horizon is defined as the number of years that remain before you plan to (or must) achieve a specific goal — for example, the Big One, retirement. Time horizon helps determine how much investment risk you can reasonably take because the longer you can hang in, the more risk you can handle. That’s because, in the event of serious downturns such as the one we’re living through, your investments will have more years in which to recover.

The main point: if you’ve been searching the web for the latest round of pundit-provided answers to the Big Questions — “How long will this recession last?” or “Could this be the prelude to another Great Depression?” or “Is it time to jump with both feet into the market?” — you’d be better off sparing yourself the trouble. The simple fact is that almost every pundit got this one wrong, and those who got it right arguably did so the way a persistent player will occasionally win at roulette. Regardless of their training, what public experts do remains as much an art as a science — and all too frequently that art proves to take the form of fantasy.

On the other hand — when they analyze the relative likelihood of a range of potential future outcomes; or when they engage in rear-window, “what the heck just happened” analyses, the experts can help you avoid potentially serious future mistakes.

If you have investments now, but no financial advisor, the suggestion here is to stop searching the headlines, and start searching for an advisor you can trust. Referrals from friends are helpful, but there’s no substitute for interviewing advisors yourself, checking their backgrounds, and studying their long-term — not short-term — track records (long-term meaning at least 5 years). Ask a ton of questions about their business model, which will be either discretionary (where you’ll sign over to them the discretion to invest on your behalf without first obtaining your approval) or non-discretionary (where your advisor can’t do a thing without getting your signature first). There are arguments to support both approaches, and your choice may be as much a matter of your temperament as anything else. But as Bernie Madoff has taught us all, regardless of who you work with, in the end you’re responsible for your own financial health. Painful as it may be, we owe it to ourselves to keep opening those monthly statements, especially in tough times, and to keep asking our advisors — and ourselves — every question that comes up. At all costs, avoid advisors who a) don’t like to answer questions and / or b) insist on providing their own investment statements rather than statements from the institutions that actually process and hold your investments.

If you don’t have any significant investments yet, this is a fine time to get started; the market is low and though it may go lower it’s certainly cheaper to get started today than it was, say, last August. Still, always remember the old maxim: if a deal looks too good to be true, it is. For every big gain there’s an equivalent (and possibly greater) big loss that could strike at any time.

Still, on balance investing in the stock market has proven to be a very good move for most who have been able to keep their money in the market for long periods. So — contribute as much as you can to your company’s 401k or 403b plan, and / or open your own IRA; it’s all pre-tax money, which reduces your current taxes because it reduces your current taxable income. And despite the mixed messages coming from our government right now (“Americans don’t save enough” followed immediately by “Americans don’t spend enough”), over the long haul saving toward specific goals is the best way to go.

No matter how much they may shout at us on television, or how many statistics they confidently recite to prove their points, public experts are only 100% accurate in the rear-view mirror: reviewing what happened yesterday. And while that kind of insight has its benefits, the suggestion here is to think long-term, find a trustworthy financial advisor, and save, save, save.

Burt Shulman is a contributor to the Fund.com Expert’s Desk and Managing Partner of ESE Advisory Group LLC. For more on Burt and ESE Advisory Group LLC click here.

Carl Delfeld

Overview and Rationale:
A contrarian play, FXA should benefit from any rebound in commodity and energy prices, intervention to weaken the Japanese yen, perception that the currency is oversold and the attraction of a 7% yield.
In 2007 Australia had about 13% of world reserves of iron ore and was ranked fourth after Ukraine (19%), Russia (16%) and China (14%). In terms of contained iron, Australia has about 15% of the world’s EDR and is ranked second behind Russia (19%). Australia produces around 16% of the world’s iron ore and is ranked third behind China (32%) and Brazil (19%).
While South Africa still has the world’s largest reserve of gold at 6000 tons (14.3%), Australia has the second largest reserve with approximately 12% of the world’s holdings.
Japanese investors seeking higher yields in foreign bond markets, such as in Australia and New Zealand, have been brutalized in recent months, with the Aussie dollar and NZ kiwi losing roughly 45% of their value against the yen to their lowest levels this decade.
FXA also offers a nice yield of 7.3% and also provides a nice hedge on the U.S. Dollar. Though recently weak, the Aussie dollar, it may reverse course as global markets concern over the Fed printing press and inflationary pressures returns.

Catalyst:
From a technical perspective, the timing to begin building a position in FXA looks attractive. The AUDUSD chart shows that the AUD has fallen from near parity with the USD at .95 to .67. During the past decade the AUD has traded above .65 for nearly 7 out of the last 10 years. The fall of the AUD has been brutal and is an outlier compared with the performance of other major currencies.

Risk Factor: Moderate given the depressed state of energy & commodity prices.

Risk Management: Suggest an 8% trailing stop loss.

Tip: You may wish to scale into a position at a price of $65 or lower.

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 8 of his book and the fourth in a series of ten entries on this subject. For more on Braun click here.

When someone starts to drone on about what you shouldn’t do, it can be difficult to stay awake sometimes. Human beings were meant to be proactive. Don’t just tell me what not to do; tell me what to do.

Here’s one of the first things to do: Get yourself a 401(k).

Here’s what it is: First established in 1981 with final regulations in 1991, a 401(k) is an employer sponsored retirement plan named after a section of the US Internal Revenue Code (Section 401, Paragraph “k”—duh). Would you believe that Japan also has 401(k) programs modeled after the U.S. system and they, too, call it a “401(k)”—even though that number and letter correspond to absolutely nothing in that country? Some trivia with which to impress your friends.

A 401(k) is usually set up by a private corporation—not a government entity. For certain selected occupations, there are similar plans that work much the same way, but are given different names. For example, 403(b) Plans cover workers in educational institutions, churches, public hospitals, and non-profit organizations, and 457 Plans cover employees of state and local governments and certain tax-exempt entities. The self-employed are also eligible to setup their own 401(k) programs. Individuals or employees themselves are not eligible to sponsor their own 401(k) plan.

A 401(k) allows a worker to save for retirement while generally deferring income taxes on the saved money, growth and earnings until withdrawal, with the theory being that most people’s post-retirement income tax bracket will be less than it is today. This makes sense for the individual when one considers that it is logical to earn more money when working than when retired, right? So the idea here is that no income tax is withheld on the money contributed in the year that money is put into the 401(k). Furthermore, some people retire to states that do not have income taxes, since income is taxed on both a state as well as a federal level (with the exception of the no-income-tax states that were explained in a previous Chapter).

However, there is a new “Roth-401(k)” (named after a U.S. Senator by the name of … Roth). With this program, taxes are paid now, but not on the growth or withdrawal in the future. Wrap your mind around this twist: You put $1,000 in today. It produces earnings and grows in value. Eventually, due to appreciation, you get to withdraw, say, $10,000 from that original $1,000 investment. Forget tax brackets—the tax on $10,000 is larger than the tax on $1,000, right? That’s how the Roth program works. Using the aforementioned example, with a Roth IRA, when you draw out that $10,000, you pay no taxes, because you already paid taxes on the $1,000 you started with way back when you put that $1,000 in.

Because of this new wrinkle, Roth 401(k)s are becoming immensely popular. What you might be wondering is how does one designate which of the two programs one participates in. The way that works is this: Your employer (not you, unless you are self-employed) sets up the 401(k) or Roth 401(k) program. Setting up either such program requires the filing of certain forms with the IRS—an employer can’t simply say, “If you want, you can give me some of your money, I’ll add some of mine to it, and we’ll invest it together and call it a 401(k).” It doesn’t work that way.

It is possible that your employer will give you a choice between a traditional 401(k) and a Roth. You can see the advantages of both, though, and even if you favor one more than the other, they’re both good retirement vehicles.

If you are self-employed, or if you are the employer, then you must mull over the differences and decide which way to go. A good professional financial advisor and/or accountant can then help you set it up and make sure all the proper forms have been filled out and filed.

Usually, the employee can select from a number of investment options, such as a variety of mutual funds that emphasize stocks, bonds, and money market investments. Some plans also offer the option to purchase company stock. The key here is, the employee—you—gets some choice as to how the money is invested, and if you leave, you can take it with you. This, again, is in contrast to a company pension plan where you have no control over how the money is invested.

This is also where that word “diversify” comes up again. Again, it is best not to have more than 20% of your money in any one stock, fund, or investment apparatus. Think about the people who tied up all their benefits in Enron or WorldCom stock.

Assets held by the plans are generally protected from creditors of the account holder (i.e., if you get sued or go bankrupt). In other words, if you declare bankruptcy, your 401(k) cannot be touched. In the case of EMPLOYER bankruptcy, assets in a 401(k) are protected, while pension plans usually are NOT (another advantage of 401(k)s over traditional employer pension plans).

Here is the biggest benefit to a 401(k): Many companies “match” an employee’s contributions, up to 1, 2, 3% or more of their salaries. This is like “free money” for the employees, and you are crazy if you do not max out these contributions! The “match” is also tax deductible to the company. Like health plans, this is an important employee perk, and many employers are offering it in order to get quality employees.

Despite this, unlike health care benefits, some employees don’t bother getting involved in their employer’s 401(k) program. This is insanity. I am urging you to be a saver anyway; why not invest in a program where some of your savings may, in fact, be matched by someone else? Picture putting $50 a week into a savings account, and then handing your employer some deposit slips so that he or she could also put $50 per week, every week, into YOUR savings account. Mind-blowing, isn’t it?

Other employees still leave money on the table by only “dipping their toe in the water” with 401(k) investment. At a minimum, I strongly urge you to put in as much money as your employer will match. Using the previous example, what if I told you that if you put in up to $100 per week, I would also put $100 per week into your account. If you only put in $50, then that is all I would put in as well. Why, then, would you stop at $50? Put in whatever I am willing to put in. Take my money, please. It’s like the reverse of the street person standing on the corner asking for spare change. A 401(k) is like a rich guy standing on the corner handing out spare change. Take it!

Furthermore, money placed into your interest-bearing checking or your regular savings account is not tax-deductible or tax-deferred. A 401(k) is. Earn $50,000 a year and put $5,000 a year into a savings account, you still pay income tax on $50,000. Earn $50,000 and put $5,000 into a traditional 401(k), you pay income tax on only $45,000. Which is better?

You can contribute up to $15,500 to a 401(k) in 2007. This will be indexed for inflation in future years, increasing in $500 increments. For 2007, the maximum total contribution (what both you and your employer can contribute) is the lesser of your total annual earnings or $45,000. Employees are generally able to contribute up to 15% of their earnings to a 401(k).

With a traditional 401(k), you must start to draw out assets after reaching the age of 70½, but can do so as early as 59½ in most cases. Only a Roth IRA is not subject to minimum distribution rules. There is a specific calculation that the government has devised that dictates how much money must be withdrawn from your 401(k) upon reaching this age of (assumed) retirement. The penalty for not doing this—50% of the amount that should have been withdrawn —is one of the most severe that the IRS levies. So, remember that this program does have certain rules and regulations that must be followed. Following them is not onerous, so don’t be scared off. But bear in mind that they are there.

If you really need to get at your 401(k) money early, there is a 10% penalty for early withdrawal, in addition to ordinary income taxes on that money, which is considered regular income upon withdrawal. There do exist, though, some exceptions for borrowing for home purchases, secondary education expenses, medical care and the like. Check with your accountant or your employer’s human resources (HR) person before contemplating early withdrawal.

If you change jobs, you can take your 401k with you. This is important, as some people are under the misconception that they must either stay at a job they dislike so that they do not lose that money, or that they MUST cash out that money and pay a 10% penalty if they leave that employment. Not to worry, the government has already addressed that issue and you are covered. If your new employer has a 401(k) Plan, you can convert yours into theirs in what is called a “Direct Rollover.” Even if your new employer does not offer a 401(k) program, you can still do this via something called an individual IRA Rollover (more on this later). You even have the third (and least desirable option) of keeping your 401(k) with your old employer. For obvious reasons, this is not a great idea since you would most likely lose daily controls over that money’s management.

Too many people ignore all of these options and simply cash out and pay the 10% penalty. Dumb, dumb, dumb, dumb. Worse yet, some then take that money and say, “Wow, what a windfall! I think I’ll go out and buy a boat.” You’ve now just thrown away a whole lot of savings, defeating the whole concept.

This is a major hurdle in savings and investment mentality in general. When we are children, parents often tell us, “If you want that expensive toy, you’re going to have to save for it and buy it yourself.” On the surface, this is good parenting in its attempt to mold young people’s minds about hard work, saving, and reward. The problem is, the reward is too easily obtained and has negligible value. So the kid saves for that hot new toy. He buys it. Six weeks later, he’s bored with the toy and it’s thrown into the back of the closet. The kid hasn’t learned to save for anything of important lasting value, such as LIVING. And this is hard because the younger we are, the less we think about tomorrow. Oh, we might think about tomorrow, as in actual tomorrow. On Monday, we think about Tuesday. What we don’t grow up thinking enough about is Tuesday, sixty years from now; when we’re old and can no longer work.

Another catch to the whole “leaving my old job and taking with me the 401(k) I had there” is simple housekeeping. Make sure the check for your cash-out (it is still a type of cash-out, unless you decide to leave it at your old employer) is written out to the new plan and not to you personally. If it is made out to you, you will have to pay the 10% penalty and the income tax. Or, better yet, go the “Direct Rollover” route and never even touch the check.

401(k)s are great and you should avail yourself of them. The tax advantages, whether you are using a traditional or a Roth type, are substantial. Again, this is an example of the government creating incentives and disincentives to direct the populace to do certain things and not do certain other things. As Social Security continues to have its problems, the federal government is hoping to have as many people saving on their own—and they consider a 401(k) something that you do on your own, even though it usually involves an employer. In this way, if Social Security benefits need to be cut more in the future, less people are likely to be adversely affected. In fact, as you may know, Social Security benefits are now taxed if one’s total income from all sources exceeds a certain level. It’s a give away/take away. Social Security is fine for people who are truly indigent—it keeps them alive. I hope it stays in existence for their benefit. But for the rest of us, all signs are pointed toward us forgetting about it and taking care of ourselves —with the occasional governmental incentive.

Ken Ennis

Use the F.A.C.T. method.

F = Fees. Where have we heard that before? It’s always important, but especially if you’re going into what’s called a “Managed Account” program. In that event, your money will be invested across a number of investment types and classes, and you’ll likely pay your advisor a percentage of the assets they manage for you (typically expressed as “basis points,” where 100 basis points = 1% of the total). Study your advisor’s fee and determine if there are (or could be) any hidden fees beyond it. Managed accounts typically involve many hands in the pot — so before signing up, find out who will be involved and what percentages each will earn. Remember the folks we listed before: sub-advisors, investment managers, custodians, operational partners, etc.? In a typical managed account, each will take a piece of your money, on top of what your financial advisor takes. Don’t get us wrong: with the right advisor, a managed account can be an excellent choice, since it will typically offer great diversification and potentially higher gains, making the overall cost reasonable. Plus, to a large extent, such accounts align the otherwise divergent interests of everyone we’ve mentioned toward the single happy purpose of making you more money — because if you do, they do. But it’s particularly important with Managed Accounts to understand exactly who’s earning what from your money.

• Remember: YOU MUST ask your advisor for an “All-in Fee,” which includes everything and everyone you’ll be paying: all the players and all the services, including your advisor’s. As a rule of thumb, the All-In Fee for a Managed Account made up of all mutual funds shouldn’t exceed 2.75%-3.00%, of which your advisor should take no more than 1.25% or so; .90% is actually average for a financial advisor, so if they do want more ask them why — and if you don’t understand their explanation (their additional services, etc.) resist the temptation to shrug, check the box, and say “Oh. I guess it’s ok”. You don’t want to work with an advisor who intimidates you, so keep on asking until you really understand; and if the process gets tense, find another advisor. Explaining and justifying their fees is part of their job, and most will actually be willing to negotiate, within parameters that include the amount of assets you’re giving them to manage.

A = Account Type. Understanding the two main account types is important because it determines how much control you’re willing to give your advisor. The overall choice is between “non-discretionary” and “discretionary” accounts. “Non-discretionary” means that your financial advisor can’t do anything without your explicit “ok”. The opposite is true with “discretionary” accounts. Think “power of attorney”: you’re giving your advisor authority (discretion) to make changes to your account without your pre-approval. This can actually be a good thing, since it allows your advisor to make fast changes in response to dramatic events. But it also means that you have to be truly comfortable with your advisor. Even discretionary accounts have boundaries, so be sure you understand and agree about what those boundaries are.

• Remember: YOU MUST understand the extent of the discretion you’re granting your advisor. Ask a lot of questions – especially the “stupid” ones that embarrass you, because we can bet they aren’t stupid at all. Can your advisor buy and sell securities on your behalf — or just rebalance existing securities to match an asset allocation target (in other words, match the percentage diversification across investment classes that your risk tolerance and time horizon call for)? If you’re giving your advisor discretion to buy and sell, what types of securities are and aren’t eligible? And never forget the core rule: if you don’t understand something, keep asking until you do. If your advisor gets frustrated, find another advisor who won’t.

C = Choice. How much choice do you have in determining your asset allocation at the outset? Can you select from a list of securities or are you signing up for a closed program that puts all investors into the same sets of securities – which can actually be fine for people who don’t have large sums to invest and want to pay lower fees, or just want some limited market exposure.

• Remember: YOU MUST understand what choices you’ll have in your program, both when the account is set up and even more importantly once your money is invested. If you want the ability to tell your advisor to replace a particular investment that isn’t doing well, make sure your account type offers that flexibility. Most firms offer several varieties of managed accounts which satisfy different investor preferences.

T = Termination. Finally, before you sign on, get all the details about what’s involved in terminating the account. Will there be any fees? If so, will these be tied to how much time will have elapsed? And once you indicate your desire to terminate, can your advisor move your assets into another type of account without your sign-off? Finally, how long will it take to get your assets back?

• Remember: YOU MUST study your termination agreement before signing on. Ask your advisor whether you’ll get hit with penalties or transaction charges if you decide you want your money back, or if you choose to move it to an account at a different institution. In some managed accounts at large firms you’ll get hit with a 1.00% “exit/transaction/see you later/thanks for coming/don’t let the door hit your wallet on the way out” fee. Needless to say, that is not what you want.

Ken Ennis is a contributor to the Fund.com Expert’s Desk and Managing Partner of ESE Advisory Group LLC. For more on Ken and ESE Advisory Group LLC click here.

Carl Delfeld

Overview and Rationale
As an affluent, high-tech industrial society in the trillion-dollar class, Canada resembles the US in its market-oriented economic system, pattern of production, and affluent living standards.

Canada is largely a resource-based economy but its service side provides good balance. It offers investors fiscal strength, low political risk, and a resilient economy.

Industrial Materials (15.6%) and Energy (26.3%) sectors account for 42% of EWC, with such main players in industry such as Canadian Natural Resources (CNQ), Encana Corp. (ECA) and Suncor Energy Inc. (SU). But the financial sector is the largest group in EWC, at 35%. These banks are in relatively good shape compared to US large banks.
Canada and EWC are also a limited play on gold mining companies with two of North America’s largest, Barrick Gold (ABX) and Goldcorp Inc (GG). Canada and EWC thus offer a low-risk way to add energy and commodity diversification to your global portfolio.

EWC offers a nice yield just under 3% and also provides a nice hedge on the U.S. Dollar. Though recently strong, the greenback may reverse course as global markets concern over the Fed printing press and inflationary pressures returns.
Canada, on the other hand, is in a strong fiscal position and actually has a current budget surplus.
Catalyst: The Canadian market and EWC will likely do very well if and when energy and commodity prices rebound from their sharp selloff.

Valuation
EWC is trading at a five-year low and lost about 10% of its value just this week. I can’t tell you where the bottom is but believe the risk/reward relationship is favorable for investors. The Canadian market is trading at about a 10% discount to the S&P 500 on a price to earnings basis.

Risk Factor
Moderate – Low given the depressed state of energy & commodity prices.

Risk Management
Suggest an 8% trailing stop loss.

Tip: You may wish to scale into a position in EWC rather than jump in with both feet.

Carl Delfeld

Overview and Rationale:
The eight million people of Austria are at the heart of the continent and the country’s resurgence brings back memories of its historical role as an imperial dealmaker. Vienna still has the regal feel of an imperial capital, much grander than its current size and stature but the country benefits economically and politically by not being France or Germany, countries that tend to throw their weight around the councils of Europe.

For several reasons, Austria and its exchange-traded fund have benefited more from Europe’s opening to the east more than any of the other older EU members.

First, the Economist points out that its trade with Central and Eastern Europe (CEE) has jumped over the past decade and a half, helping to reduce its trade deficit. Second, and more important, Austria’s stock of direct investment in central and eastern Europe zoomed from almost zero in the early 1990s to nearly 10% of Austria’s GDP.

Furthermore, while a decade ago much of its investment was concentrated on manufacturing, now the biggest chunk goes on financial intermediation, property and services. This reflects its growing role as the nexus of support services for Eastern European countries. The eastern opening, together with those of Austria’s EU entry in 1995, EU economic and monetary union in 1999 have boosted economic growth as well as the ETF (EWO) that tracks it.

That is, until last fall when EWO began a sharp decline as the economies of Eastern Europe slowed exposing fiscal weakness and fragile currencies.

Catalyst:
The chief catalyst that I believe will propel EWO is its relative valuation and the likelihood that markets and economies of Eastern Europe are at a point of maximum pessimism.

Valuation:
We are likely close to a point of extreme pessimism for EWO with minimal downside risk and potential for prospects improve. The Austrian market is trading at just 5.5 times projected 2009 earnings compared with 11.2 times for Germany and 12.8 times for Switzerland. It is down about 20% over the last three months but showing some near-term strength.

Risk Factor:
Moderate though keep in mind that the top three companies in EWO (Erste Bank, OMV and Telekom Austria) account for 39% of its assets.

Risk Management:
Suggest an 8% trailing stop loss

Ken Ennis

F = FEES. Most mutual funds have fees, and most add them up so you can see what you’re paying as an overall percentage of your investment. 1.25% for stocks funds and .50% for fixed income funds are fairly reasonable expense ratios. If the fund you’re interested in has higher ratios than those, ask your advisor why. Then ask whether he/she can recommend cheaper alternatives — and regardless of their answer, keep looking yourself.

• Remember to multiply the % in the expense ratio by the amount of money you’re investing. 1.25% may not sound like a lot — until you attach it to your hard-earned $100,000 investment. At that point, 1.25% becomes an annual fee of $1,250 per year for a single fund. That may make you uncomfortable.

I = Investment Strategy. Explanations of a fund manager’s strategy will be found in the fund’s prospectus, and in fund reports provided by reputable fund data suppliers like Morningstar or Lipper. Basically, you’re looking for two things:

1) does the fund “walk its talk”? I.e., does it in fact invest the vast majority of its assets in the asset class that’s in its title. For example, if you invest in the “ABC Small Cap Growth Fund”, you’d like to see 90-95% of that fund invested in small cap growth stocks. If you see less, buyer beware.
2) In the case of the above, what is the fund investing in besides small cap growth stocks? Small cap value stocks or cash would be fine. Mid cap stocks, large cap stocks, fixed income, real estate – not fine. We suggest you look for another fund. If the words “illiquid” or “high yield” show up in the investment descriptions of a fund that doesn’t claim to be a high yield fund, the manager may be trying to enhance returns by tossing in investments that don’t belong. Look for another fund.

• Remember: YOU MUST understand what a fund invests in before you invest in the fund. Not doing this would be like buying a house without going upstairs or checking out the basement. If you find the process too confusing, ask your advisor to explain it to you. If you still don’t understand, trust your instincts and move on to another fund anyway – and possibly another advisor. Warren Buffett only invests in businesses he can understand; it seems to work pretty well for him.

T = Turnover. “Turnover” means the percentage of a fund’s instruments that are bought and sold within a given year. 100% is a good base turnover for an equity fund, but if it goes significantly higher than that, you risk paying higher fees (even if the fund, gulp, loses money) because there are so many trades that must be paid for. Plus, with so much turnover your capital gains taxes may be higher – even if, once again, the fund loses money overall. A high turnover fund – 200%+ — is making quick bucks on its trades. That can be fine if it’s the investment style you really want — but again, your tax bill may give you serious sticker shock.

• Remember: YOU MUST try to find a fund’s turnover numbers over the past few years to get a sense of a pattern. If last year’s number was 125% and the two years prior were 250%, buyer beware. You’re looking for consistency, and that isn’t it.

T = Tenure. As in: Fund Manager Tenure. In most cases, you’re better off with a fund that’s managed by a team, because it ensures that your hard-earned money doesn’t rely solely on one person. Five years or more of reliable tenure gives a fund’s results a degree of consistency. Of course, if a fund changes managers, don’t rule it out — the new manager maybe eminently qualified to do a fine job. Just be aware that the new team won’t have any track record in managing that particular fund.

• Remember: YOU MUST look in the prospectus for the tenure of the manager or management team. If it’s less than 5 years, move on to another fund, unless your advisor can give you good reasons to believe that the new manager is qualified and ready to go. Most people do more research before they buy a washing machine than they do before investing their life savings in a mutual fund. Shop around; this decision is too important to rush.

Ken Ennis is a contributor to the Fund.com Expert’s Desk and Managing Partner of ESE Advisory Group LLC. For more on Ken and ESE Advisory Group LLC click here.

Carl Delfeld

Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H. W. Bush, and he is the author of The New Global Investor . Click here for more analysis from Delfeld, or to subscribe to Chartwell Advisor. click here.

Why you should use Exchange Traded Funds (ETFs) as your Core Investement Tool
Exchange-Traded Funds (ETFs) are exciting new investment tools that have grown rapidly to over $400 billion of assets. ETFs offer exposure to dozens of asset classes due to ETFs broad diversification, great flexibility, low expense ratios, high tax efficiency, superior ETF trading flexibility, and competitive long-term performance versus active managers.

ETFs are passively managed portfolios designed to track specific indexes and represent baskets of stocks, currencies or commodities.
Some ETFs offer relatively low-risk, broadly diversified portfolios, which investors may find attractive as the core equity components of their portfolios. Others offer diversified investments in particular styles, sectors, industries, regions, countries, or commodities.

There are currently almost 300 ETFs that provide exposure to US equity markets.
The largest ETF managers include Barclays Global Investors (iShares), State Street Global Advisors (streetTRACKs and SPDRs), Bank of New York (QQQQ), MDY, BLDRs), Vanguard, Merrill Lynch (HOLDRs), World Gold Trust, PowerShares, Rydex, ProShares, WisdomTree, DB Commodity Services, Victoria Bay, Van Eck, Claymore, First Trust, and Fidelity. Several ETFs offer exposure to duplicate or similar indexes; however, there are significant differences in the products and indexes especially as to how they weight companies in the ETF basket. We believe investors should favor ETFs that best meet their investment objectives with the lowest operating expenses and reasonable liquidity.

There are 80 ETFs that provide international equity exposure.
Many international ETFs are iShares based on MSCI Indexes, but others are based on S&P, Bank of New York ADR, Dow Jones STOXX, and WisdomTree indexes.
ETFs are an excellent tool to build a low cost and simple global portfolio. ETFs offer investors have many choices of global and international sector ETFs to allow them to take advantage of global growth and value opportunities around the world.

Six ETFs offer US fixed-income exposure.
They are all iShares based on Lehman Treasury and Aggregate Indexes and a Goldman Sachs Corporate Bond Index. There are also ETFs that target dividend rich companies and preferred stock.

There are 14 ETFs that provide exposure to alternative asset classes including gold, silver, oil, broad based commodities and currencies.
Three commodity ETFs hold the physical commodity in which they invest, while three other ETFs utilize commodity futures. The currency ETFs invest in foreign time deposits or currency futures.

ETFs trade on major exchanges.
This allows investors to buy and sell them at stated market prices. In contrast to open-end funds that price once a day at the close, ETFs are available to all investors at market prices throughout the day. This helps to reduce the uncertainty of buying shares intraday at prices to be determined at the close. Many index-linked ETFs can also be shorted without an uptick, providing extra flexibility for hedging or market-timing.

ETFs are very flexible investment tools relative to mutual funds.
They can be bought on margin, purchased using limit and stop loss orders, and many have listed options. This open trading prevents opportunities for market timing in which some investors buy open-end funds investing in foreign markets that closed before US trading started. For example, on a day when the US market is higher, ETFs based on a Japan index usually trade up in anticipation of higher prices in Japan overnight. In this case, open-end funds investing in Japan may be priced based on the previous day’s close.

Index-linked ETFs have some of the lowest expenses of any investment tool.
Their expense ratios are significantly lower than those of open-end mutual funds, but the range has widened as some providers cut fees while certain newer products have higher fees. For example, the Vanguard Total Stock Market Index Fund (VTI) has an expense ratio of seven basis points (bps), while the average actively managed domestic equity open-end fund has 150 bps in expenses.

ETFs are also tax efficient since the securities in the ETF basket only change as the index it tracks change.
Mutual funds often distribute large amounts of capital gains to shareholders each year. ETFs capital gains distributions are rare and so ETF investors enjoy a lower tax burden which of course drags down returns.

For a complete list of ETFs, ETF sponsor information, articles about ETFs and performance data, please click here.

Braun Mincher

Braun Mincher is the author of “The Secrets of Money: A Guide for Everyone on Practical Financial Literacy”. This blog entry is from Chapter 8 of his book and the third in a series of ten entries on this subject. For more on Braun click here.

Okay, so while I’m in the midst of debunking the retirement myths of the last few generations, allow me to now eviscerate “the company pension plan.” Yes, between Social Security and the company pension, we would be set for good. That’s what Americans were told and many believed it. Frankly, for a short window of history, it was true. But unfortunately, those days are now over.

A pension is a steady income given to a person by virtue of their previous employment, usually after retirement. These are generally funded through labor unions, the government, or through the former employer themselves—sometimes as a pure benefit or sometimes via an employee contribution matched by the employer. The concept of the company pension went along with the classic “gold watch” for fifty loyal years of service. That was what America was once built upon—the lifelong employee. For a time, most American parents taught their children that this was why they should “get a good job,” and this was what defined a good job. A “good job” involved working for a big “stable” company that not only provided wages, but also a retirement plan. All you had to do was get hired, then show up for work each and every day for the rest of your productive life and everything would be set for you. No cares, no worries.

This is no longer the case today. True pension plans have been almost entirely replaced by 401K plans and IRAs (definitions and entire dedicated subchapters to follow). Most younger workers are NOT covered by an old-fashioned company pension that pays benefits upon retirement. Some of the biggest traditional pension plans still in existence are through major unions such as those for teachers or government employees. Also, non-unionized government employees still do rather well with these programs in most cases.

Furthermore, we are very much in the age of “Future Shock,” that is, too much change in too short a period of time. Few companies are truly stable. It has been said that fifteen years from now most Americans will be working in industries that do not even exist today. Starbucks only began in 1971 and didn’t expand to multiple cities until 1987, but look at them today. Microsoft was only founded in 1975. Google just began in 1998. Fifteen years from now, even these big names may seem quaint and antiquated.

The point I am trying to make is that “The Big Boss Man”—your employer as some surrogate parent figure—is a thing of the past. You work for him (or her) and the employer gets from you what they need and you get from them what you need. In each case, the needs are immediate and immediately gratified. But there isn’t much of a tomorrow. Tomorrow is no longer guaranteed. Only you can guarantee your own tomorrow.

Pension funds usually invest in large real estate projects, like shopping malls and high rise buildings and use the return from that investment to fund payments. But if you read the newspapers, you will recall that some pension funds have been horribly mismanaged over the years, and workers’ contributions or contributions made on their behalf have been squandered in highly speculative ventures—or stolen outright.

The point here is that, if you do happen to work in an industry that provides a pension plan, you have no control over the management of that money. Repeat: You are not in control. Your opinion does not count. In upcoming subchapters, we will talk a little about things like mutual funds, where you are investing in some expert’s opinion of which stocks and investments should provide the best possible return. But even then, you can pull your money out and “ride another horse” if you don’t like the results of that expert’s investment picks. You can’t do that with a company pension. You’re along for the ride, good or bad. Personally, I like a bit more control over my own future than that.

In addition, pension benefits, combined with health benefits and other perks, have crippled some of America’s greatest companies. Large and powerful unions forced large employers, such as those in the automobile industry, to provide incredibly lucrative compensation packages for their rank and file employees. These benefits far exceed what might be considered free market-driven wages and benefits for unskilled or semi-skilled workers. This may have been good for the workers (while the party lasted), but it eventually ruined the companies themselves. Consider companies such as General Motors. Instead of being a manufacturer of cars, GM is more like a healthcare/pension company that just happens to also make cars. Tons of retirees drawing large pensions has contributed greatly to large layoffs of current employees, outsourcing of manufacturing, and the inability of domestic manufacturers to compete with savvy foreign companies. It is said that approximately $1,000 of the cost to build each GM car goes directly into retiree benefits.

The bottom line: Do not depend on Social Security OR a company pension plan (if you are one of the few who still qualify for one) for your retirement. Take responsibility for your own retirement by saving … starting NOW!