Diving Into The Reader Mailbag
In classic movies, a montage of overflowing mailbags often represented the power of public opinion. Either that, or someone would run into the room and shout: “The switchboard is lighting up!”
The Investing Daily team gets lots of feedback, too. In this digital era, our letters mostly arrive in the form of emails, although from time to time we receive a hard copy letter via snail mail.
As we stand on the cusp of a new year, I thought now would be an opportune time to answer a few emails that particularly caught my eye:
“I enjoyed your excellent article about investing basics, especially the advice about ETFs. (Your reference to Dr. Reuben’s famous book from 1969 sure brought me back!) The trick now is finding the right underlying index. How can I pinpoint the index that’s right for me? There are so many to choose from. Thanks for your guidance.” — Paul L.
Paul, if you’re counting on the long-term healthy returns of buy-and-hold investing to lead you to a secure retirement, exchange-traded funds (ETFs) may be the route for you.
Your first decision: which index do you want to mirror? Start by considering the broadest, biggest and most widely followed benchmark indices. There are scores of sector subsets followed by ETFs, but here are the “Standard Seven” indices to start your search:
- The Standard & Poor’s 500 Stock Index (the S&P 500) is often cited by the press to demonstrate how all stocks performance for the day. The stocks included in the S&P 500 are those of large publicly held companies that trade on the largest American stock exchanges. It’s considered a bellwether for the U.S. economy.
- The Dow Jones Industrial Average measures 30 large, publicly owned companies based in the U.S. As with the S&P 500, the Dow is considered a proxy for the performance of American business and a leading indicator for economic activity.
- The Wilshire 5000 Index is made up of almost all U.S stocks traded on major exchanges.
- The Russell 2000 Index selects the smallest 2,000 of the 3,000 largest U.S. companies commonly traded, which makes it a benchmark for small-company (a.k.a. small capitalization or small-cap) index funds.
- The Morgan Stanley Capital International Europe, Australasia, and Far East Index (MSCI EAFE) is a gigantic value-weighted index composed of 21 country indexes that represent most developed country stock markets overseas. It excludes the U.S. and Canada. The MSCI EAFE is the most common and widely followed benchmark for foreign stock funds.
- MSCI Emerging Markets Index is a way to capitalize on fast-growing overseas markets. This index entails more risk, but also the opportunity for higher return. This index is dominated by Asia, Latin America, Africa, the Middle East, and smaller up-and-coming European countries.
- The Barclays Capital Aggregate Bond Index, formerly called the Lehman Brothers Aggregate Bond Index, is maintained by Barclays Capital, which took it over from the now defunct Lehman Brothers. This index represents investment grade bonds traded in U.S. The index includes U.S. Treasury securities, government agency bonds, mortgage-backed bonds, corporate bonds, and certain foreign bonds traded in the U.S.
“I do have an interest in your ads but do they have to be so verbose???” — Don C.
Don, it’s true: our investment strategists are passionate about their work and sometimes they get carried away. Maybe if they were shrewder marketers, they would strive for a little more concision. But they know their ideas work and they’re eager to get their point across!
“Your presentation is very helpful in that it explains a lot of the issues involved in stock investing. I started out many years ago investing $25 per month. I too gravitated to mutual funds for the simplicity. Then I became aware of a publication called Money Paper through which you could buy just one share of any company.
Because the publisher bought large quantities at one time, brokerage fees were greatly reduced. Thereafter you could buy more shares of that company, through Computershare, in any amount, often ending up with fractional shares. Since then many companies now allow the direct purchase of their shares, at minimal cost, in small quantities with additional investments possibly. One can have a very diversified portfolio of small investments in individual companies.
I am happy to say that my portfolio has grown considerably over the years so that I am able to trade in round lots through a discount broker. I thank you for your advice that helped me get there.” — Louis R.
It’s our pleasure, Louis. For our team, Job One is helping readers like you reach their wealth-building dreams.
As they used to sing on David Letterman’s show: “We get letters! Stacks and stacks of letters!” Send your letters to: firstname.lastname@example.org — John Persinos
A Dream Offer
We want everyone to enjoy investment success like Louis. That’s why we’re offering you the opportunity to get all of the research and recommendations that we publish… free and for as long as you live.
It’s an ironclad, lifetime membership in our elite investment group called the Wealth Society.
When you join, you’ll get access to the caliber of investments once reserved for high net worth investors… plus unlimited access to everything we publish… for the rest of your life.