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Portfolio > ETFs


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Remember when Charlie Brown found a rock in his trick-or-treat bag in the Peanuts Halloween show? That’s the way I think a lot of us feel when the stock market “corrects.”

Sure, we’ve been listening to Robert Shiller, Jeremy Grantham and other market experts tell us this was coming (as they’ve done before earlier corrections). But hearing about something that could be painful and actually experiencing that pain are such different things, of course.

(No, I have not been checking my portfolio performance hourly or even daily. Yes, I am having a review session with my advisor soon … I can’t wait, right?!)

Like other investors, current conditions give me a chance to tinker with my portfolio — including my holdings of ETFs, a product that’s the focus of two feature stories this month. With my advisor, hopefully, I can avoid making any bad decisions tied to “loss aversion.”

This concept, studied by Harvard professor Brigitte Madrian — a subject of a magazine feature last month — is critical to appreciate. “The literature suggests that people are twice as sensitive to losses as they are to gains,” she said in a recent radio interview.

If we hate losing twice as much as we love winning, it’s easy to make bad choices and do things like buy high and sell low. (I had trouble stopping my mother from doing this in 2008.)

But when we are feeling pain, we want to act. Boy, do ETFs give us that opportunity. We can do things like short oil futures and go long on wind power or double down on our bullish view of the U.S. dollar and bet three to one that the ruble will weaken further.

Likewise, Google gives us the chance to seek out and read volumes of “information” about investing, as columnist Marshall Jaffe writes about this month. As is the case with buying ETF and investing in general, advisors can play a key role in helping clients sift through the market news and product choices.

S&P Dow Jones Indices’ research continues to reveal how many actively managed funds fail to top their respective benchmarks (see Fund Reporter). This industry information is something advisors may want to highlight at client meetings, in newsletters or at a public event they host.

This month’s Research Reporter describes some of the reasons investors switch advisors, which include a lack of proactive contact, an absence of good ideas and advice, as well as underperformance. Engaging clients in a lively chat about where the markets are headed, active vs. passive management or a potential interest-rate hike might prove helpful.

I will do my best to keep up with the market news as I travel to a number of industry events this fall: the 10-annual meeting of the Retirement Income Industry Association in Indianapolis, a city I’ve never visited; the AIG Advisor Group’s national educational conference in San Antonio, my hometown; and the 21st annual Raymond James Women’s Symposium in St. Petersburg, Florida, a great place with a wonderful tropical climate (and no fog from the Pacific Ocean like I have at home in the San Francisco area).

As for Halloween plans, my two boys are too old for trick-or-treating this year. Maybe I’ll offer them a few shares of an ETF instead of a bag of candy. That’s what I did one year a Christmas, when I bought them some SPDR S&P 500 ETFs and “smaller” holiday presents. I’m not sure if they felt like Charlie Brown when he got that rock in his Halloween bag. They later traded the SPY shares for other holdings, which (fortunately) proved to be “sweet.”


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