Archive for January, 2011

Moving Average Trading

ETFs


Since I work in the financial industry, I get opportunities to speak to stock brokers and portfolio managers. Each of them have their little secrets (some of them are good, while some of them are very bad! Hahaha!). One of them is called moving average trading.

Market swings are giving you headaches? You don’t want to risk your retirement fund but you want to make more money than 3% with a 5 year certificate of deposit? Have you ever heard of moving average trading?

What is Moving Average Trading?

This is a derivative trading strategy from technical analysis. Moving average trading basically needs 2 data to work:

–          A Stock Chart

–          The Stock Moving Average

In order to show you how moving average trading works, I’ll take an example.  So let’s pull out the 5 year stock chart of SPY, one of the top US Market ETF. While I am using an ETF, you can use the moving average trading technique with any stocks.

ETF 5 Year Stock Chart

simple moving average etf

Ok… the chart alone doesn’t tell us much about what and when to trade… We can only acknowledge all the ETF fluctuations over the past 5 years. In order to know when we should be trading, we will need the 2nd piece of the puzzle: a 200 day moving average.

ETF 5 Years Stock Chart Along With its 200 Day Moving Average

Just before we analyze the graph…

Let’s take a step back and look at what the moving average represents. The moving average is a statistical concept used to measure major trends in data. The moving average is usually used by technical traders. It helps trigger a buy or a sell action. You can use a moving average with the number of data points you want (10, 20, 30, 50, 100, 200, etc).

Moving Average Example

Lets say that you have 50 data points and you want to calculate the 20 days Moving average. You will take the data from 1 to 20 and make an average. This will be your first point. Then, you will take the data 2 from 21 and make another average. This will be your second point on the graph. You now take data 3 from 22 and so on. Along with your graph from 50 data points, you will also have a smoother line showing the current trend of your data; this is the Moving average.

What is the point of using the moving average while trading?

The moving average will replicate the trend of the stock you are following (the ETF in this example). Therefore, it shows when the stock is on a up trend or a down trend. As you may know already, there is a huge psychological factor on any stock market. Therefore, if you can predict the trend of a stock or an ETF, you will know when it is the best moment to buy or sell. While this sounds pretty magical, it is far more complex than some wishful thinking. However, the moving average added on the stock chart helps you determine what the major trend is.

Wait! How Do We Use Moving Average When Trading?

In an upcoming post (next Monday), I’ll explain how to use the moving average and provide a full example of how you can do it. So stay tuned to know how to use the moving average when trading

How To Teach Money

Parenting


In my opinion, I think that today’s kids are spoiled. If I take my 2 children for example, I can tell you that they have their main playroom on the first floor and another one in the basement. They got so many toys at Christmas and for their birthdays, that in December, we made them give 3 toys each to charity. This is definitely a huge challenge for parents: learning how to teach money to your children. I experimented with something last week; let me share this money lesson with you.

How To Teach Money

My son, William, is 5 years old. He is about the age to begin to understand the importance of money in our lives. But I still find that teaching my son about money is still too early. I tell him that nothing is for free, that he has to take care of his toys and clothes and that I have to work very hard to pay for the house, food and so on. However, all these money lessons are pretty vague for him as “working” and “money” are not concepts he fully understands. This is why I thought of doing something different.

How To Teach Money And Values at the Same Time

Williams loves soccer. At the age of 3, he wanted to jump on a soccer field with the other kids and play. He started playing in a league when he was 4. I know he is my kid and I am biased when I say this, but my son is very good at soccer. In fact, during the winter season, he jumped up to the 5 and 6 year olds league. This year, he is dominant. The problem is, as with many children, he is not always motivated. He is sometimes “tired” or he thinks he can wait on defence and get away with a few breakaways in the game. This is how I thought of money to motivate him.

Money doesn’t mean much to him

Teaching money to a 5 year old boy is a hard task as I mentioned. So I decided to offer him a prize as a source of motivation. Just before we left for the game, I told him I wanted to make a deal with him. Here’s the deal:

–          If he scores at least 5 goals; we would go to the restaurant

–          He must not tell his teammates

–          He must pass the soccer ball

–          This is a one time deal only

He scored 12 goals and had 4 assists!

I didn’t expect him to perform like this; he was running all over the field and playing well on defence, in mid field and obviously on offence. We did go to the restaurant but I had a very important discussion with my son after the end of the game.

How to Teach Money Through This Example

I told my son that we were going to the restaurant not because he scored 12 goals, but because he made a complete effort. These efforts, this motivation were the real reasons why he scored so many goals. I wanted to teach him that when you really put all you have into something; it gives benefits. That often, effort = rewards. And obviously, rewards come with money ;-).

I can’t wait to see if my son will learn this lesson about money and motivation. Next Friday, I won’t offer him any deals… but I hope to see the same motivation!

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12 Meaningless Time Eaters in Your Day

Career, Personal finance

wasting time

Have you ever had the feeling that you don’t have enough time in your day? I do! However, I also noticed that sometimes, time is taken away from me by what I call meaningless time eaters. So this morning, I sat down and made the list of all the things that happen on a daily basis and are far from being necessary in my life. I have found 12 time eaters so far:

#1 My Blackberry

I actually love my Blackberry for many reasons. I can deal with my email while I am waiting for the metro or by the printer at work. However, I have a bad habit of checking my email too many times during the day and also getting into BB conversations (usually frivolous) with friends. I should definitely learn how to manage it properly!

#2 My iPod Touch

I bought an iPod Touch over Christmas since my Nano broke. The problem I found with the iPod Touch is that you are tempted to play with it. You spend ridiculous amounts of time searching for useless applications that will make you smile once or twice and then, just take up space on your iPod. Gotta use it for its real purpose; playing music!

#3 Stupid Magazines

I don’t read magazines often but when there is one lying on the kitchen counter, I can’t help taking a look… 15 minutes later I realize that I still didn’t make breakfast and I have not had my coffee yet!

#4 Dexter

Dexter is a TV show produced by ShowTime. I don’t watch much TV but when I am hooked on a series, I watch them all in a row. It doesn’t happen often, but when it does, it’s a time killer for sure!

#5 Waiting in line for metro tickets

Once in a while, I have to buy metro tickets. I always buy them in bulk to save time and money. However, it feels like every time you need tickets, there is always this lost tourist in front of you asking the clerk for directions… this is when it’s not the guy who lost his wallet or has the wrong tickets!

#6 Loading my computer at work

My computer at work has a lot of security software installed. On top of that, they are doing several updates overnight on the network I’m working on. Therefore, after a weekend, it could take up to 15 minutes to start my computer. Once I am done with my voicemail, there is not much I can’t do without a computer!

#7 My colleagues at work

Monday and Friday mornings are the worst. It seems that they all need to babble for a good 30-45 minutes before starting work. They come around with their coffee, sit down without an invitation and talk…and talk… and talk. I like them,  but I also have to work from time to time ;-).

#8 Hockey

I’m a big hockey fan. I watch it, participate in a hockey pool and follow hockey news throughout the day. While this is great entertainment, I guess I could spend my time on more important things ;-).

#9 Follow-ups

I work in an industry where a lot of things require tons of paperwork. And where there is admin work, there are follow-ups. I’m done with asking people where my forms are on their priority lists. But if you don’t bug them, you don’t get anything done… sad!

#10 Newspapers

Honestly, most newspapers are a big waste of time. You don’t really get news, you just get to know how many people got killed here and there or arrested for this and that. What’s the point? I guess you probably don’t even remember what was on the first page of your favorite newspaper 5 days ago!

#11 Cleaning my emails

Spam, funny email, follow-ups ;-): delete, delete, delete! I get about 100 emails a day. 50 of them need to be read and answered; the rest could be deleted without much attention…

#12 Meetings

I don’t like meetings at work. They are usually monopolize your time for several hours a week. You don’t get much out of it besides the fact that busy people are busy in meetings if you know what I mean ;-).

Any others?

I’m sure this list is not complete. Do you have any other time eaters that are stealing precious time from you?

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ETF Asset Allocation Model

ETFs


Last week, we briefly discussed how to build an ETF asset allocation within your portfolio. We also created a 2011Top ETF lists broken down in different asset classes. But knowing that you can build your portfolio with ETFs and knowing which ETFs are the biggest on the market does not ensure you are investing money correctly. Did you know that asset allocation is responsible for more than 90% of your portfolio return over a long period of time? This is why today I will display an ETF asset allocation model for growth investors.

ETF Asset Allocation Model Example

I believe that you don’t need many ETFs to build a solid portfolio. I also think that if you add more ETF, you are leaning toward diworsification instead of diversification ;-). The ETF asset allocation model I am presenting today is for aggressive investors. The purpose of such asset allocation is to generate growth overtime. This ETF model suits an investor perfectly if you are not afraid of market fluctuations and that you plan on investing over a long period of time (401(k) account for example).

SPY (US Market): 15%

EWC (CDN Market): 15%

EFA (Intl Market): 15%

EEM (Emerging Markets): 15%

VNQ (REITs): 20%

TIP (Bonds): 20%

Is the ETF Allocation Model That Simple?

This is actually the point; why should an ETF asset allocation model be complicated? ETFs were created to bring a new flexible opportunity for investors without having them pay high management fees. Now that the product has become so popular, you have too many choices. By sticking to the basics for your asset allocation (e.g. most influential stock markets + fixed income), you are sure to benefit from the markets without losing yourself in a 20 ETF portfolio.

This Allocation Model Should Be Considered Aggressive

As previously mentioned, this ETF asset allocation model is considered to be aggressive. Why? Because even if you are holding fixed income related investments (e.g. bonds and REITs), the problem is that you are not the shareowner of your fixed income. Therefore, ETF bonds and ETF REITs follow the market value of the underlying assets. You will earn interest or dividend income, but you are not the beneficiary of any guarantee. Since you have no guaranteed investment in this model, the portfolio should be considered aggressive.

The ETF Asset Allocation Model Should Be Combined With Bonds or CDs

If you prefer taking less risk in your portfolio, you can also combine this ETF asset allocation model and some government bonds or certificates of deposit. I know that the latter are far from being sexy investments as their interest rate are very low these days but it can bring some stability to your portfolio. In the event of an interest rate hike, your bond ETFs will drop as well as the value of the individual bonds in your portfolio. The difference is that you know that if you wait until maturity, your individual bonds will be paid completely without any capital loss.

Final thoughts on my ETF Asset Allocation Model

Do you like it? Do you think I have forgotten an asset class? What does your asset allocation look like at the moment?

ETF Asset Allocation Portfolio – How To Build your Portfolio

ETFs

ETF Asset Allocation

As previously mentioned in my introduction post on ETF Asset Allocation, I discussed 2 ETF investing approaches; the micro and macro asset allocations. Today, I want to dig further into the macro investing strategy as I think you can setup a great ETF portfolio with a lazy management asset allocation technique. This won’t require much of your time while you will be able to:

#1 Follow the market

#2 Make money over time

#3 Optimize your fee structure

#4 Build a solid asset allocation

#5 Use few investment tools (only a few ETFs)

ETFs To Be Included In Your Asset Allocation:

While I won’t tell you which ETF to buy or to trade (I’m not making any recommendations on ETFs nor on your asset allocation), I made a list of ETFs covering specific markets along with a some information to help you make your own decisions. Remember that all ETFs are traded on the US market.

ETF US Market

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
SPYSPDR S&P 500 ETF Trust $95,075,250,000.00 127.390.094514.2311.779221339
IVViShares S&P 500 Index Fund/US $26,471,340,000.00 127.850.0914.2371.749344528
QQQQPowershares QQQ $23,408,110,000.00 55.920.222.0830.644903443
IWMiShares Russell 2000 Index Fund $17,768,250,000.00 78.970.225.5821.13146251
VTIVanguard Total Stock Market ETF $17,594,060,000.00 65.680.0716.2231.747868456

ETF Canadian Market

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
EWCiShares MSCI Canada Index Fund $4,596,753,000.00 30.830.5314.9761.616950956

ETF International Market

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
EFAiShares MSCI EAFE Index Fund $36,771,840,000.00 57.60.353.7322.425043533
VEUVanguard FTSE All-World ex-US ETF $6,820,287,000.00 47.460.257.3972.14707133
VEAVanguard Europe Pacific ETF $5,379,575,000.00 35.810.154.4262.504886778
EPPiShares MSCI Pacific ex-Japan Index Fund $4,265,151,000.00 46.310.511.1033.349425802
VGKVanguard European ETF $2,752,851,000.00 48.260.160.7254.778284282

ETF Emerging Market

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
EEMiShares MSCI Emerging Markets Index Fund $47,594,400,000.00 47.6850.7212.2621.355017258
VWOVanguard Emerging Markets ETF $45,508,440,000.00 48.20.2714.5681.690871364
EWZiShares MSCI Brazil Index Fund $13,087,150,000.00 76.780.652.5083.656000481
FXIiShares FTSE China 25 Index Fund $8,297,140,000.00 43.970.720.1621.428144098
RSXMarket Vectors - Russia ETF $2,701,176,000.00 38.810.6217.3660.474104613

ETF Real Estate (REIT)

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
VNQVanguard REIT ETF $7,509,153,000.00 550.1228.4273.438181877
IYRiShares Dow Jones US Real Estate Index Fund $2,885,063,000.00 $55.750.4726.163.538206126
RWRSPDR Dow Jones REIT ETF $1,371,493,000.00 $60.600.2527.6252.958404349
RWXSPDR Dow Jones International Real Estate ETF $1,446,328,000.00 $38.430.617.3838.806011002
UREProShares Ultra Real Estate $527,574,200.00 $50.110.9547.860.774088395

ETF Bonds

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
TIPiShares Barclays TIPS Bond Fund $19,388,990,000.00 107.240.25.5152.511233058
LQDiShares iBoxx Investment Grade Corporate Bond Fund $13,003,800,000.00 108.3650.158.484.873744387
AGGiShares Barclays Aggregate Bond Fund $11,179,570,000.00 105.170.25.2433.506356096
BNDVanguard Total Bond Market ETF $8,988,750,000.00 79.90.115.3213.495449119
SHYiShares Barclays 1-3 Year Treasury Bond Fund $8,102,808,000.00 83.880.151.8861.030274244

Why Not Add Commodity ETFs to Your Asset Allocation

That is definitely a personal choice but I would rather use a Canadian ETF instead of a pure commodity ETF in my asset allocation. Why is that? Because almost 40% of the Canadian market is represented by commodity related companies. They have oil, gold, silver… you name it! On top of that, the Canadian market has a strong economy and shows great potential for the future. This also smoothes the volatility of a portfolio as pure commodities in your asset allocation will definitely increase the variations.

Another personal reason why I don’t like commodity ETFs is because investing in commodities is pure speculation. A bar of gold never produces a single dime of income. Investors consider commodities in their asset allocation based on the speculation that the price for resources will surge. I prefer going with a Canadian ETF. If you are looking to play with currencies at the same time, you might want to consider XIU, a Canadian ETF following the Canadian market.

But if you really want to include commodities in your ETF asset allocation, here’s the table of the top ETF in that category:

TickerNameMarket CapPriceFees1Y ReturnDividend Yield
GLDSPDR Gold Shares $56,101,540,000.00 133.830.420.0160
SLViShares Silver Trust $10,135,990,000.00 28.420.559.1270
GDXMarket Vectors - Gold Miners ETF $7,024,554,000.00 56.740.5315.7680.706732452
DBCPowerShares DB Commodity Index Tracking Fund $5,073,809,000.00 27.220.855.832#N/A N/A
DBAPowerShares DB Agriculture Fund $2,683,451,000.00 31.570.8516.883#N/A N/A

6 ETFs and Your Asset Allocation is Over

This sounds almost too good to be true isn’t? In next Monday’s post, I’ll discuss more about how to adjust your ETFs in order to get the right asset allocation for you. As you can see, building a solid ETF portfolio can take only a few minutes.

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