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Adventures in Global Exchange Traded Funds

Aug 17, 2007
Global exchange traded funds are not as complicated as the name implies. Below are some easy steps to creating a successful and profitable ETF portfolio. For anyone who is interested in any type of investing is it important first create and maintain a rainy day fund. This is 6 months of income placed into a money market account or placed in saving bonds.

This type of account will allow you to be more confident in all higher risk investments because you have money set aside in case of emergency or financial loss. It is extremely important to have separate portfolios. One portfolio will be your conservative securities.

The second will be your growth securities. The goal of your core conservative approach is to preserve your initial investments and growth in those stocks is secondary. The growth portfolios is higher risk, more speculative, and intense growth is the ultimate goal.

Additionally make sure your diversify all of your portfolios. This is important because you want your portfolios off set each other. For example if one is in decline the other should be increasing. This is especially important if unexpected or a decline in the market becomes a reality. Many people think that different parts of ETFs or capped ETF (small or large) can offer their portfolio security. This is simply not true. The goal is always to have investments, equally balanced between low and high risk.

A good example of this is currency trading. When the US dollar is decreasing it can be beneficial to have some investments in other metals and currencies like Swiss Franc or Australian dollars. Or when inflation increases you could have investments in wood, gold, or Treasury bond. When politics go south in one country it is helpful to have investment in other developed countries to compensate.

When choosing companies to invest in make sure you look for the following characteristics. Make sure you pick a country that is stable and have a strong government which controls both government and corporations. Make sure the legal rights within the country are sound and not prone to subjectivity.

Double check the countries guidelines with regards to contracts, corruption, due process and rule of law. Make sure the country's economy is displaying discipline and their currency is strong. Also take into account what is the political climate as well as what is their relationship with the United States.

Most financial experts would advise that a great way to minimize risk is to buy countries not stocks. Instead of picking up a couple of Japanese stocks you could buy Japanese iShares which spreads your investments and therefore the risks over 225 companies. It is also important to re-balance your portfolio. Once at year you should review your investments and make the necessary changes to make your risk in certain countries is not too high.

You can do this by selling stocks that are doing well and getting stocks which are under performing but have the potential to grow. In a volatile market do not hold out for top dollar, if your stocks are at a good price, sell them and make a great profit!
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