How To Create Your Own Mutual Fund

Adam Sarhan |

Intro To ETF’s

Whether you are a long-term investor or an active trader- every buy or sell decision you make in the market begins with an idea. Do you think this stock is undervalued? Do you think this is a growth stock? Is the economy going to expand or contract over the next 6-12 months? Does this stock have an exciting new product that is “in-demand?” Do you think gold will be higher or lower in the next 12 months? Will energy prices be higher or lower next quarter? Etc…etc…

Ideas Move Markets

Make no mistake about it, the right idea in this business is priceless. The market thrives on ideas and the number one reason why most people under-perform the market is because they do not have access to the right ideas. Instead, they shoot from the hip, do not have a plan, then let their emotions take over every time the stock moves a few points in, or out, of their favor. There must be a better way….I  know making money on Wall Street is not easy (unless you have the right ideas) and that’s the exact reason why I created FindLeadingStocks.com. To help you succeed on Wall Street. In addition, to giving you exact entry and exit points in leading stocks, I also show members how to express investing ideas via Exchange Traded Funds (a.k.a. ETF’s).



ETF’s Defined

An exchange-traded fund is a relatively new instrument that trades like a stock and has changed the way capital is being deployed on Wall Street. ETFs, like stocks, come in all different shapes and sizes, but they all represent a way to profit from an “idea.” For example, let’s say you want to buy gold in your IRA (or normal trading account) but can’t buy physical bullion and don’t want to buy individual gold stocks. The easiest way to express that view would be to buy the GLD, which is a highly liquid ETF that tracks gold prices. The GLD reflects the price of gold and can be bought and sold instantly. Another investor might want to invest in biotech stocks. So they might buy the IBB, a highly liquid, and very popular, Biotech ETF. So on and so forth.

How To Find The “Right” ETF:

The latest studies show that there are over 1,500 ETFs on the market, and over 150 new ETF’s launching each year. This is why it is very important to pick the right ETF. The way that I use ETF’s is to start by asking myself what is my underlying investment idea? Do I want to own tech stocks? If so, then I will look at all the available tech ETF’s and then narrow my search down to the top 3 most liquid tech ETF’s. Then, I’m able to select the one that best expresses my underlying view. If they are all the same, I will usually choose the one that has the highest average volume (trades the most shares each day). This way I know I can comfortably get “in” or “out” anytime the market is open without a hassle.

Are ETF’s Expensive?

Are ETF’s expensive? The answer is no. According to ETF.com, the average U.S. equity mutual fund charges 1.42% in annual expenses and the average U.S. equity ETF only charges 0.53%. If you look closer, the vast majority of ETF money is being invested with an average fee of only 0.40%. That is a huge difference.

Create Your Own Mutual Fund

Another benefit I find when investing in ETF’s is that I can use them to easily create my own custom mutual fund. Meaning, I can buy (or sell) a basket of highly liquid ETF’s, and/or individual stocks, that allows me to very easily create a mutual fund (but at a fraction of the cost). I show FindLeadingStocks.com members exactly how to do this and incorporate ETF’s into our investment toolbox each week. If you want to learn more, why don’t you try FindLeadingStocks?

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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