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The New Global ETF Investor - back to Contents >
Chapter 7:
A Time to Choose
Investor Trust at Low Levels
A recent survey by U.S. Trust of wealthy investors with a net worth of $6 million or more concluded with some startling sentiments:
- 83% of those surveyed believe there is an inherent conflict of interest with investment firms
- 79% questioned the reliability of corporate financial statements
- 78% don’t trust the recommendations of stock analysts
- 66% no longer trust corporate management
This skeptical attitude may or may not be warranted but it is pervasive and cannot help but affect how we execute our investment plan. One of the advantages of using ETFs as your core investment tool is that you are not choosing specific companies to invest in, nor relying on the management and financial statements of a few companies. There is also no need to read or depend on Wall Street analysts’ reports or recommendations. You can make decisions on asset allocation from a top down and global view and take most of these issues off the table.
Know Your Outcome: Setting Reasonable Goals
Your asset allocation and decision making process must start with your goals and expectations. You must know your outcome and try to position yourself to achieve it. If you have $2 million and have no desire other than to live on the interest it generates, there is no reason to be in the stock market at all. Why take the risk?
On the contrary, most of us face hard decisions as to how to allocate our $50,000, $100,000 or $500,000 in investments. What do we need and what returns are we expecting? For the Core Conservative portfolio, one might expect a long-term average rate of return of inflation plus say 7-8%. For the capital growth model portfolios, the average long-term rate of return would be expected to be higher with the trade off being the acceptance of greater volatility. If your expectations and goals are unrealistic and too high, it may lead you to taking on too much risk.
Using an Index: Master or Servant?
We have already discussed at length the numerous different indexes that are currently available for investors. Some of them lead to the creation of funds that track them as closely as possible. iShares track 83 of these indexes. With all this emphasis on indexes, it is easy for investors to lose perspective and become preoccupied with indexes and how their portfolio performs relative to a specific index.
Keep in mind that an index performance number is just a number. Hopefully, if you own an ETF or other investment that tracks a particular index, the performance number in a given year is positive and not negative. The key is how the blend of investments which constitute your portfolio performs each year and more importantly, over time. Suppose the S&P 500 index is down 20% in a given year and your portfolio is down 15%. Are you happy that you outperformed the index while suffering a 15% loss? Not likely.
You might be happy if instead of putting all your eggs into an S&P 500 index fund you allocated your investments over a variety of countries, industries and asset classes leading to a 4% gain in that same year. Don’t be a slave to the capitalization driven formulas driving index composition. If you strongly believe that Ireland is a better long- term investment opportunity than the United Kingdom, don’t purchase an index fund which places a weighting on the UK 28 times that of Ireland based on market capitalization formula.
An investor also needs to take the time to look behind the index and analyze what is in the index’s basket of securities. It might be substantially different from what one expected.
For example, perhaps the most widely used international index is the MSCI Europe, Asia, and Far East (EAFE) index and one might expect broad exposure to all markets. However, 48% of this index represents companies in the UK and Japan alone. After Japan, the first non-European country in the holdings by country ranking is Hong Kong ranked #12 with an allocation of 1.7%.
Another example is the MSCI Emerging Markets Index in which three country’s holdings constitute nearly 50% of the index: South Africa, Taiwan and South Korea. Investors normally believe they are getting very broad based exposure throughout the world and sometimes this is far from the truth.
Helping You Harness the Power of ETFs
You have decided to use ETFs as your core investment tool and to follow the six other investment edge principles outlined in this book. How might you move forward to put together and execute your investment plan?
The following broad steps need to be completed:
- Think through your desired outcome and separate your core portfolio from your capital growth portfolios.
- Decide which ETFs together with any other investments belong in your core portfolio and carefully put together a blend for your capital growth portfolios.
- Monitor your portfolios and from time to time adjust them to reflect your changing financial status and economic conditions and trends.
You have three options to achieve these tasks.
Option # 1 – On Your Own
You might decide to do it on your own. If you have the background, enjoy and have time to do the required research, this may be a viable alternative.
You have to ask yourself whether you know enough about the countries you invest in and want to do on your own the required intensive research.
The chief risk is that your emotions may get in the way and fear and greed may take over with unfortunate consequences. For example, what if one of your capital growth portfolios is down 15%-20% in a given year. Will you stay the course or will you sell your holdings just when the portfolio is turning upward?
Option #2 – With Your Financial Advisor
A second option is to work with a financial or investment advisor to put together and monitor your ETF global portfolio. You will need to select the right advisor and make sure he or she takes the time to understand your goals, time frame and personality. They will also need to be a specialist or at least very knowledgeable about ETFs and global economic and financial developments. This is a tall order. Most likely, your advisor will suggest putting your ETF portfolios into a wrap account where brokerage commissions will be included in a 1% asset based annual wrap fee. This means that you will pay an annual fee of about $1,000 for a $100,000 portfolio.
Option #3 – your best option with ChartwellETFadvisor.com
But you may want a more cost effective option and need an experienced guide to help you build a global portfolio.
Chartwell is that guide.
Chartwell offers you something difficult if not impossible to find in today’s financial marketplace: common sense, and independent, unbiased, global investment advice.
ChartwellETFadvisor.com, is the online global advisor arm of the investment firm, Chartwell Partners. We don’t sell stocks, mutual funds, insurance or annuities. We have no conflicts of interest and are therefore able to freely choose what’s best for our model portfolios.
The last thing you need is a stockbroker offering you a hot tip or a financial newsletter throwing idea after idea at you. Instead, Chartwell offers you something different: a Conservative Core and three growth portfolios to bring order and coherence to your investments so you can sleep at night knowing you have a strategy and a plan.
As head of Chartwell, I have nearly 20 years of experience in the global investment business and practical on the ground experience throughout Europe and Asia. I was also a consultant to the U.S. Treasury and the U.S. Congress and served on the Board of the Asian Development Bank.
More importantly, I have the experience of being through the many cycles of investing and recognize the need to look for value throughout the world and at all costs avoid fads and trends.
Just think of what’s happening in the world. Will China and India continue on the path to growth and reform? How will the war on terrorism play out and affect global markets? What countries in Europe are leading efforts to deregulate moribund labor markets? Which emerging countries will be successful and how should you balance the higher risk/reward nature of these markets?
While your present advisor is preoccupied with the next quarter, we spend some time thinking about the next three, five, ten years or even the next quarter century.
As a member of ChartwellETFadvisor.com you will have access to the following services:
Our Chartwell Model Portfolios with the following performance.
Model ETF Portfolio Performance |
2003 |
2004 |
2005 |
2006 |
Core Conservative ETF Portfolio |
+25.4% |
+18.6% |
+6.15% |
+19.8% |
Global ETF Portfolio |
+41.3% |
+27.6% |
+12.8% |
+20.3% |
International ETF Portfolio |
+45.4% |
+27.7% |
+16.3% |
+22.3% |
Asia ETF Portfolio |
+43.5% |
+25.0% |
+10.0% |
+26.7% |
New Venture ETF Portfolio |
|
|
+5.9% |
+7.9% |
Gone Fishing ETF Portfolio |
|
+11.4% |
+6.0% |
+14.8% |
Chartwell Global 30 Average Fund |
|
+16.3% |
+7.8% |
+16.9% |
In addition, you will receive:
- Portfolio Alerts when we make a change to any portfolio
- Investment Alerts containing investment news and information
- Access to archives containing past investment letters, articles and reports
- Discounts on customized portfolio consulting services
Consider becoming a member of ChartwellETFadvisor.com. Then separate your financial resources into a core portfolio and capital growth portfolios and follow our model portfolios while keeping control of your assets through your brokerage account.
You may wish to make some changes to the Chartwell model portfolios based on personal knowledge or other considerations. It would probably be a good idea to get an advisor involved in deciding how to allocate your resources amongst the model portfolios and to make adjustments to fit your needs and goals. It is always smart to get a trusted second opinion.
An Investment in Success
Normally, I charge $3,000 for a personal portfolio review.
Using a web-based model portfolio approach through ChartwellETFadvisor.com allows me to reduce the price to an annual subscription of $995.
Keep in mind the substantial savings that comes with using ETFs as a core investment tool and this alone makes this a generous offer.
But to encourage you to try ChartwellETFadvisor.com, we offer you for a limited time:
Special Introductory Offer
Just $495/year
And meanwhile you’re paying your broker $40 a trade, thousands and thousands of dollars of unnecessary mutual fund fees and capital gains taxes, wrap account fees and so on for the same old worn out, unimaginative strategies and tools and receiving mediocre investment performance to boot.
And try ChartwellETFadvisor.com with this guarantee. Should you try the annual subscription and it does not measure up to your expectations, you can cancel anytime for a pro-rated refund.
Choosing a Brokerage Partner
Since they trade on exchanges like stocks, ETFs need to be purchased in a brokerage account. The brokerage business is competitive and there are many choices out there. Look for a well-established firm with a good reputation for service as well as low rates. There are some terrific online discount brokers with rates as low as $5 a trade. This is why the cost issue of putting together an ETF portfolio is not much of an issue. If you are dealing with a major Wall Street investment firm, the costs will be higher reflecting the value of the financial advice you are receiving.
Chartwell’s favorite online broker is Brownco, a subsidiary of J.P. Morgan. I have had a personal account with them for four years and they seem to offer the best combination of price, service and track record. They can be reached at 1-800-822-2021 or at brownco.com.
Building your Financial Team
While deciding on the best way to put together an ETF global portfolio, think about how you are organizing your financial life. Do you have a team in place to help you or are you a lone wolf? Do you depend on one person for all your financial advice? It doesn’t matter how much money you have to invest, you deserve the best and advisors expert in their respective field. Why don’t you put together a team of an ETF specialist, an insurance specialist, a good CPA and perhaps someone to handle legal issues?
The “do it alone” mentality or depending on one person for all your financial needs can be deadly. Consider how a professional athlete organizes their financial life. They have an agent to negotiate contracts, a financial advisor to oversee investments, a strength coach to keep in top form, a coach to direct overall play and a sports psychologist to maintain a positive attitude. They are the very best in their sport but need a team of top-flight advisors to maximize their potential and so do you.
Look Forward: Not Through your Rear View Mirror
Investors and advisors tend to dwell on the past rather than focus on the future. We study the charts and historical performance of various stocks and funds trying to discern a pattern. We play in our heads past investment mistakes we have made over and over again. And most importantly, many believe that we cannot invest successfully, that the investment business is a zero sum game and that any gains will soon be followed by losses.
Looking at the past to learn lessons is useful but it is important to look forward and think about emerging trends such as the rise of China, globalization, the hollowing out of the U.S. manufacturing base, demographic trends in Japan and Europe and the consolidation of banking around the world. Fortunes are made by looking forward rather than backwards.
I wish you the best in building a successful global portfolio and hope you follow the investment edge principles laid out in this book. With patience, creativity and persistence you can reach your goal of independence, freedom and wealth.
Carl T. Delfeld
President, Chartwell Partners, Inc.
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