It’s time to start looking at the roadmap. The roadmap I am speaking of here is the financial roadmap for 2009. Unlike planning a road trip, knowing where you are going to turn before you start doesn’t apply to investing. Nobody can predict all of the twists, turns, and forks in the road named Wall Street. We can, however, look ahead and see where the mile markers are, and where the key sites of interest reside.

Another way of saying this is that what you want to do now that 2009 has arrived is start developing the investment themes you think will come to pass this year. I’ve identified a few of my own, and here’s a rundown of each:

1) Cash is still king. If you haven’t figured it out already, cash is your best hedge against a deflationary environment. In my advisory services and for my managed clients, we will be using cash accounts as a safe haven in time of market duress. Please don’t make the mistake of thinking that getting a small return of 1% or less is a reason not to hold cash. Money markets are still the best safety net in times of turmoil, as they are liquid, they accept deposits, and they allow withdrawals whenever you need your money.

2) Muni bonds. I think muni bonds could be huge in 2009, and they are particularly suitable for high-net-worth investors. Municipal bonds were a disaster in 2008, with the Muni bond indexes down 12%, while some high-yield Muni bond mutual funds were down 30% or more. For more on munis, see today’s ETF Talk.

3) Bear market rallies. I think we are currently in the midst of a bear market rally. When it stops, nobody knows, but we’ll do our best to make the right call for you. During bear market rallies you are best served by shortening your investment time horizon to weeks, rather than months or years.

4) Bear market sell offs. Despite the recent bear market rally, we are, in fact, still in a bear market. That means there will likely be plenty of shorting opportunities ahead when those bear market rallies run out of steam.

5) Commodity bear market rallies. It’s no secret that oil, gold, basic materials and precious metals are all way oversold right now by historical standards. That means there will likely be plenty of bear market rallies in these individual commodity-related sectors. I think energy is one of the great opportunities destined to emerge from the market rubble of 2008.

6) Rising interest rates. The governments of the world have promised their citizens a whole lot of economic stimulus in 2009, and those promises are going to require a lot of funding. Expect interest rates to rise, i.e., bond yields to rise, in 2009.

7) Currency plays. We could see a lot of action in the dollar vs. rival foreign currencies this year. We also could see a further rally in the dollar going into 2009, or a complete collapse of the greenback. I think the fate of the U.S. currency all depends on confidence. We have a new administration, new Congress—and the prospect of bigger and bigger budget deficits. Will the world continue to invest in America, or will confidence in our financial system be lost in 2009? Watching the direction of the currency will help us answer these questions definitively in 2009.

The December 31, 2008 Fabian ETF Report is hot off the press. Click here to download this data rich listing of every exchange traded fund and their 2008 performance. The report is sorted by domestic, international, sector, bear market, currency, and leveraged funds.

The Hulbert Financial Digest just published its top ten performing newsletters of 2008 and in the top half of that list is Doug Fabian’s ETF Trader! Our positive net return of 13.2% ranks our newsletter 4th in the country as compared to similar investment recommendation services.  Over that same time period the S&P 500 Index has lost more than 40% in one of the worst years ever for stock investors.

Click here to read the MarketWatch article.

We’d also like to congratulate Arch Crawfords publication Crawford Perspectives which garnered the top spot with a return of more than 40%.

For most people looking to grow their serious money over the long term, I believe ETFs are quite simply the best investment vehicles available today.

I suspect many of you reading this right now are already familiar with the term exchange-traded fund (ETF), but do you really understand what ETFs are? Are you aware of the tremendous number of ETF offerings out there for you to choose from? In this report you’ll get a complete list of virtually every ETF available today. This is the same list we here at Fabian Wealth Strategies analyze each and every day to get a true picture of what’s happening all over the investment landscape.

Click here to download the Fabian ETF Report for December 12, 2008.

I thought that this week we should review some of the basic “rules” behind investing in exchange-traded funds (ETFs). I have been touting ETFs as excellent investment growth vehicles, but anything that is new to you can be a little tricky.

Rule One: Diversification

ETFs are flexible investments — you can buy options, go short, and hedge. ETFs also let you invest in a variety of sectors and trends without the risk of single-stock exposure. In fact, some international ETFs give you exposure to stocks or entire sectors that can’t be bought in U.S markets. Let’s face it, ETFs offer diversity — if your goal is to have a mix of assets, ETFs let you do this simply and cheaply.

Rule Two: Explore Your Options

Remember, just because ETFs have stock-like properties doesn’t mean that you are confined to investing in equities. ETFs let you bet on almost anything that can be tracked by an index.

Since the economic downturn, it has become wise to look into alternatives to stocks, namely bonds and currencies. Through ETFs, you can focus on corporate bond indices and/or inflation-protected Treasuries. You can buy ETFs that short the British pound sterling, are bullish on the Japanese yen, etc. There are even ETFs out there that let you buy a basket of currencies ranging from the Indian rupee to the Swedish kroner.

Another alternative to stocks could be to keep part of your portfolio in cash. Instead of using money market funds, you could invest it in short-term bond ETFs, which often pay double or triple what money market funds yield.

Rule Three: Keep an Eye on Trends, and Moving Averages

I like to isolate trends in the market by observing both the 50- and 200-day moving averages to know when to buy and sell. The moving averages remove the “noise” in stock prices. When a stock breaks above or below its 50-day average, the short-term trend has been broken. When the ETF falls below its 200-day average, it is time to sell.

Rule Four: Set Reasonable Stop Losses

This rule is more technical than strategic. To lock in your profits and limit losses, you must set reasonable stop prices or trailing stop losses, depending on the pick. If you have a trailing stop loss in place, you will be protected if the price of your ETF soars and then suddenly dives.

Rule Five: Watch for Minimum Trading Volume

Another important thing to remember while trading ETFs is to watch for trading volume. You want to invest only in ETFs that have a daily trading volume of at least 100,000 shares. Remember, the higher the volume, the more liquid the ETF. A fund with low trading volume could leave you vulnerable to wider swings in the share price during volatile times.

Well, there certainly is more to know about ETFs, but you now have some basic rules to follow. It never hurts to remember the fundamentals of ETF investing, whether you are an experienced investor or just trying to get started. In a volatile market, knowledge and caution gain heightened value.

The New Year is almost here, and soon we’ll all be making our list of New Year’s resolutions. I got a head start on mine for 2009, and here’s just a sneak peak at what I want smart investors to resolve to do next year:

1. I will prepare my family for a tough economic environment in 2009.
2. I will have a positive increase in my liquid net worth in 2009.
3. I will save in excess of 10% of my gross income in my retirement accounts.
4. I will save and safely secure at least three months of living expenses.
5. I will stop losing money on bad investments or bad investment advice.

Of all of these resolutions, perhaps the most important is the last one. You see, losing money on bad investments is perhaps the most frustrating thing that can ever happen to you.

To accomplish this goal, you need to adopt a new mindset. You need to adopt new investing techniques, and you need to get rid of and get out of bad investments as the market returns to rally mode.

Although there are many ways to make sure you don’t lose money, one great technique is to set trailing stop losses on all of your invested positions.

Although the mechanism for setting a trailing stop loss varies depending on which brokerage you use to place your trades, the principle of a stop loss is the same everywhere and it shouldn’t be thought of as complicated.

When you set a trailing stop loss on a new position, you are telling your brokerage firm to sell that position as soon as it falls whatever percentage you set from the buy cycle high. Let me explain.

If you purchase a stock or an ETF for a hypothetical $10 per share and you have placed a 10% trailing stop loss order on that purchase, the stock or ETF will be sold if it falls to $9 per share. If, however, the stock or ETF rises after your purchase to $20 a share, then comes back down to $18 per share, your position will be sold at $18 per share.

A trailing stop loss allows you to protect yourself from a quick dive in the share price of your security, and it allows you to protect your gains in the event that the security soars and then pulls back sharply.

If you are unsure of how to set a stop loss, then please consult the Web site of your online brokerage, or call your brokerage and ask its representative to provide you instructions on how to do so. Most online brokerage firms make it easy to set trailing stop losses, and you can do so whenever you purchase an ETF or common shares of stock.

Please take the time to learn how to set stop losses. In this fast-and-furious market, having a trailing stop loss in place is absolutely essential to making sound trading decisions.

The same advantages of broad-based market funds that I shared in last week’s ETF Talk also extend to international funds. Both kinds of ETFs provide diversification, low expense ratios, trading flexibility and tax efficiency through index investing. In addition, both also allow the use of limit orders and short selling.

With the U.S. economy in poor shape, it is now more important than ever to diversify strategically, and international ETFs could be especially useful in helping you to do so. When the stock markets recover, emerging markets likely will show the greatest gains. For that reason, I want to bring the iShares MSCI Emerging Markets (EEM) to your attention. It has about $12 billion in assets and offers the potential to soar when the markets recover.

Another fund to watch is the iShares MSCI EAFE Index Fund (EFA), with about $29.4 billion in assets. It contrasts with EEM by investing at least 90% of assets in the securities or investment instruments of the underlying index of developed international markets.

I also recommend becoming familiar with iShares FTSE/Xinhua China 25 Index (FXI). The fund generally invests at least 90% of its assets in the securities of the index or in American Depository Receipts (ADRs), Global Depository Receipts (GDRs) or Euro Depository Receipts (EDRs) that represent securities in the index. FXI also invests in other assets such as futures contracts, options on futures contracts, options, and swaps related to the index, as well as cash and cash equivalents.

Many financial advisors recommend investing at least 20% of your portfolio in overseas funds. That is not a bad idea at all. The reasoning is that those funds are supposed to rise and fall independently of the U.S. market. Well, there has been more correlation than not lately, with virtually all of the world’s markets taking a big hit. However, not all of the markets will recover together. For that reason, exposure to foreign markets helps to offset domestic market swings.

I personally like broad-market international ETFs because of their sheer breadth and liquidity, low expense ratios and narrow bid-ask spreads. These characteristics make buying ETFs better values than foreign stock mutual funds.

In the past year, international ETFs have grown even faster than domestic ones. ETFs that offer international exposure are gaining popularity quickly among investors, according to the Investment Company Institute. In the 12-month period ended Oct. 31, total ETF assets rose 38% to $335.1 billion, while global ETFs nearly doubled to $82.8 billion.

Before you buy any international ETFs, here are a couple of other things to keep in mind. Some ETFs track only indices that have foreign stocks traded on U.S. exchanges. Others track indices based on foreign stock markets. What’s the difference between the two varieties? ETFs that track foreign stocks traded on U.S. exchanges tend not to be as diversified as ETFs based on foreign markets. However, an advantage of buying a basket of ADRs is that the U.S. market usually has tighter and higher accounting standards than most foreign markets.

So, if you want some additional portfolio diversification, get your passport out and go international.

I’m a big fan of using leverage with my investments. When investing for short-term profits, there’s nothing as good as having a 2-beta fund in your portfolio. What’s a 2-beta fund? It’s a fund — usually an ETF — that moves twice as fast as the underlying index. These 2-beta funds can move in the same direction as an index, or they can move the inverse of a particular index.

But what if you are the impatient, even impetuous type who craves even more leverage? What if there were funds that allowed you to go for a triple play?

Well, you’re in luck. Thanks to ETF issuer Direxion, there are eight new ETFs that are leveraged bull and bear funds designed to seek 300% — yes, that’s 3-beta — of the daily performance, or 300% of the inverse of the daily performance, of the four indexes they track.

Now before we go any further, I want to make sure you understand that 3-beta ETFs should not be viewed as core portfolio holdings. They are too volatile to be used for that purpose.

But if you like to live on the investment edge, and really like to swing for the fences, then the new Direxion funds could be right for at least a small percentage of your trading money.

After all, if you’ve got the temerity to put your chips in the 2-beta pot, then why not take the next step and go for the triple?

Here’s a quick rundown of Direxion’s new 3-beta funds:

Direxion Large Cap Bull 3X Shares (BGU)
Direxion Small Cap Bull 3x Shares (TNA)
Direxion Energy Bull 3x Shares (ERX)
Direxion Financial Bull 3x Shares (FAS)
Direxion Large Cap Bear 3x Shares (BGZ)
Direxion Small Cap Bear 3x Shares (TZA)
Direxion Energy Bear 3x Shares (ERY)
Direxion Financial Bear 3x Shares (FAZ)

Note: A special tip of the hat goes to my friend Tom Lydon of ETFTrends.com for the heads up on these triple-leveraged ETFs.

Doug Fabian and Judd Pyle give their tips for investing in difficult economic times for December 2, 2008 on Fox Business News.

Consider taking cover if you hold any mutual funds in taxable accounts. Many mutual funds that absorbed big losses still will incur significant capital gains for the 2008 tax year. Those capital gains are caused by mutual funds buying and selling stocks during the year – even if a fund racked up huge losses.

Investors looking to limit their tax liabilities from capital gains may want to move money out of mutual funds during the very near future. The record date for when mutual funds assign capital gains to their account holders usually comes as soon as early December. This doesn’t leave you much time to take action. If you delay, expect to owe Uncle Sam more in taxes that you otherwise may have anticipated.

The lesson of incurring capital gains from a money-losing mutual fund may come as a bit of a shock if you are a young investor who largely has only known bull markets. This year’s market turmoil likely caused the stock mutual funds that you own to sell heavily as other investors bailed out and caused the fund companies to redeem their shares.

Keep in mind that you still will incur a one-time tax liability if you sell any mutual fund shares for a profit that were held in a taxable account. If you invest in mutual funds through a 401(k) or a similar retirement account, you escape the tax liability this year. The benefit of selling mutual funds before the record date is that you will avoid incurring capital gains not only this year but each year in the future that you otherwise would stay invested in the funds.

I checked with a couple of the leading mutual fund companies, Vanguard and T. Rowe Price, and learned that the capital gains of some of their mutual funds will be significant. The Vanguard Health Care Fund is estimated to incur capital gains of $8.03 a share, with a record date of Dec. 15. T. Rowe Price posted an announcement on its Web site to inform investors that “unprecedented market fluctuations” in the second half of 2008 are causing potentially “substantial” revisions to its previous capital gains estimates. The record date begins Dec. 10 for T. Rowe Price’s stock mutual funds and Dec. 4 for its bond and money market funds.

My favorite investment vehicle, exchange traded funds, typically minimize capital gains to shareholders because of their index structure. Consider rotating out of your under performing mutual funds into ETFs for a more tax-efficient and low-cost investment alternative.

Remember that phrase from the 1992 presidential election campaign? The term was coined by Democratic Party pit bull James Carville, and it refers to the idea that then Gov. William Clinton was a better choice than President George H.W. Bush because the latter had failed to properly navigate the economy through a recession.

The more that things change, the more they stay the same.

Now it’s up to President-elect Obama to deal with the nation’s issues at hand, and once again, it’s the economy, stupid.

The biggest issue in a macro sense is the credit and housing markets. So far, government moves to help free up credit markets and bail out banks and financial institutions slammed by the subprime mess have been met with virtual indifference on Wall Street. Then we have a world economy in recession, and an overall sense that things are going to get much worse before they start to get better.

To put what we are all facing into a little historical perspective, consider the following statistics:

• There have been 13 recessions since 1929, and on average they’ve lasted 10 months.
• The longest recession ever was The Great Depression, which lasted 44 months.
• The recessions of 1973-1975 and 1981-1982 lasted 16 months each.
• In the 13 recessions dating back to 1929, the median S&P 500 bottom occurred 58% of the way through the recession.

I present these bits of information to you not to scare you, but rather to alert you as to just where we are right now in our country’s economic history. I think it is safe to say that we are, in fact, in the midst of a recession that started somewhere between the end of 2007 and the beginning of 2008.

Although the economy may not have technically descended into recession during this time period, the material effect of recession certainly was felt in the economy and the psyche of investors around the globe.

Given the protracted nature of recessions, and considering what we’ve experienced in the market meltdown of 2008, I think we can say that this recession likely will be at least on the order of 1973-1975 and 1981-1982.

Unfortunately, there isn’t much a President Obama can do about this situation — save for some Keynesian scheme to spend more government money (i.e., your tax dollars) in a vain attempt to stimulate the economy. Sadly, I think this will have the perverse effect of doing more harm than good, both for the economy at large and for the equity markets.

So, what’s an investor to do?

One answer is to embrace what is so often the forgotten asset class, cash. Another answer is to pick and choose your spots carefully, investing in segments of the market likely to outperform the major indices based on strong sector fundamentals and strong technical momentum.

The bottom line here is that whatever you do, you have to realize that you are in a tough environment and that whatever action you take you are going to have to do so within the context of the profound epithet dolled out by James Carville — It’s the economy, stupid.

You and probably every other investor in the world right now are concerned about avoiding big losses in the equity markets. It certainly is understandable, in light of the big pullbacks in markets virtually across the globe.

But did you know that there is an easy way to limit your downside in equity investments? I have applied this technique successfully many times this year with exchange-traded funds (ETFs).

The safeguard that I use is to set stop losses.

This can be done as easily with individual stocks as with equity ETFs. Sure, everybody wants to profit, but you need to be prepared for when your investments go south. If you invest, this is going to happen to you. Hey, it’s part of the game, but losses don’t have to keep you out of the game. If you plan accordingly, you can cut your losses and/or protect gains by setting stop losses.

Now, because ETFs tend to be less volatile than individual equities, you may not feel the need to set a stop loss. This, in my view, is a big mistake. No matter how great your risk tolerance may be, you should always set a stop loss on every ETF you buy. Your stop loss could be 15% below your original buy price or 10% if you are more conservative. You also could be really conservative and set a stop loss below 10%. Just remember that wherever you set your stop loss, don’t be mad if and when your ETF gets sold out from underneath you.

This is not a disaster for your portfolio, but rather disaster avoidance. Think of it this way. You may have saved yourself from a frightening freefall of the sort we’ve seen in many ETFs throughout much of this bear market.

I have been stopped out of positions in the past, then re-entered later and ultimately made money.

For newcomers to setting stop losses, here’s a brief explanation. A stop-loss order can be placed with your broker or an online brokerage to limit your potential losses in an ETF. You can set the stop loss at the same time that you place your purchase order or you can do so whenever you or your financial advisor feel the timing is right.

A big advantage of a stop loss is that you do not need to monitor your position on a daily basis. You can go on a vacation, enjoy the holiday season or be away from the news for any reason of your choosing, yet still protect yourself from deep losses.

One additional factor to consider is that once the stop price is reached, a stop-loss order becomes a market order. Just because you set a stop loss at $25 does not mean that a buyer is offering that price. In a fast-moving market, the next highest bidder for your shares in an ETF might offer a price of $24.75 or even less, for example. Once your stop order becomes a market order, you receive the best price for that holding currently available. However, do not let this uncertainty deter you from setting stop losses.

Click below to download the ETF Report and PowerPoint presentations from my latest standing room only seminars at the Washington DC Money Show this past weekend.

ETF Strategies in a Difficult Market

Seven Secrets to ETF Success

Fabian ETF Report

Now that the election is in the books, Wall Street can refocus on corporate America’s books. Unfortunately, those books aren’t going to be an uplifting read.

All of the major economic metrics will likely be much lower in the fourth quarter, and that’s following an already dismal third quarter. The unemployment rate will likely continue rising, corporate earnings will probably come in well below expectations, and consumer and capex spending is forecast to be the worst it has been in many years.

These recessionary conditions mean one thing for the market—more bearish sentiment, more selling, and a whole lot more risk baked into the investment cake.

In the midst all of the negativity pervading Wall Street right now, there is one theme common to nearly every mainstream investment advisor out there. That theme is a reluctance to embrace what I call the forgotten asset class—cash.

The chart here of the S&P 500 certainly proves that equities aren’t the place for your serious money. Yet despite the pernicious declines in the market, most advisors are still telling their clients to stay the course.

Look at the table below, which outlines the performance of the major indices throughout multiple time frames.

As you can see, no index has been safe from the mass sell-off that’s hammered so many investors for so long. The real problem here, as I see it, is the column here in yellow. That column shows how far below the all-important, 200-day moving average each respective index is currently trading. The fact that equities are so far below the 200-day average means that it will be a long, long time before it’s safe to go back into the equity waters.

Despite the overwhelmingly negative economic metrics, and despite the current state of the major market averages, most advisors are telling clients they have too much cash in their portfolios.

I recently talked with a client that had over $1 million in cash generated from the sale of a home. She told her broker she wanted to stay conservative with the money, but his first reaction was to sell her some kind of product. He told her cash wasn’t a good place for her money. Instead, he sold her corporate bonds, some of which are now worth only 2 cents on the dollar!

This kind of financial malpractice is a symptom of not wanting to embrace the forgotten asset class of cash. Cash is absolutely king when it comes to surviving a big market downturn, and if you haven’t done so already, I recommend you take a serious look at increasing your cash allocation.

So, why do most mainstream advisors avoid cash? Simple, there’s nothing in it for them.

You see, you can’t charge big fees on cash. You can’t charge a commission on a money market fund, and because a broker doesn’t make any money for himself when you are in cash, there is no incentive for him to recommend you stay there.

Fortunately, I don’t have that incentive. My only incentive is to help you safely navigate this market storm.  If your advisor does not want to move you to cash, consider another alternative.  Fabian Wealth Strategies actively manages client assets using exchange traded funds.  We are now accepting new clients in both our growth and income portfolios.  Call 800-391-1118 or visit www.fabianwealth.com for more information.

Why Not Turn it Into cash?

By Kevin Yurkus, President, Fairway Capital

Chances are you have owned a term life insurance policy for years. You probably purchased the policy to provide for a beneficiary after your death. However, for many term life insurance policyholders, the purpose and value of the policy begins to change with each passing year. The policy may be about to expire, and converting that policy into another insurance product would likely be too expensive.

If you’re in this situation, a life settlement could be the solution for you.

A life settlement is a financial transaction in which a life insurance policy owner sells an unwanted or unneeded policy to in institutional investor for a lump-sum dollar amount. The institution becomes the new owner and beneficiary of the policy, and is responsible for all subsequent premium payments.

A life settlement gives you cash to use however you like—right now. You can pursue a professional dream, travel the world, help a grandchild with college tuition, or whatever else you see fit to do with your money.

While life settlements have become an integrated part of estate planning for people over 65, recently “early life settlements” have now become available for people who are between 56 and 70 years of age.

The sale of an existing term life insurance policy transforms what is often seen as a liability or a necessary evil into a resource that can and should be managed as part of an overall financial plan.

It’s estimated that approximately 73 million Americans currently have life insurance policies, yet many people don’t realize how powerful an asset their policy can be in the battle for maximum wealth appreciation.

Instead of letting your term life policy expire without paying you a benefit, you can use an early life settlement to your advantage. Here are just a few of the reasons why you should consider leveraging this new opportunity:

• You can turn an expiring asset into liquidity for your estate
• You can take advantage of other investment options
• You can stop paying high insurance premiums each month
• You can realize an immediate gain from your future asset
• If the status of your estate has changed, and life insurance is no longer needed to pay estate taxes, then you can shed that wasting asset

Many savvy investors now see the true value of their term life insurance policies. Given the current decline in traditional assets like stocks and bonds, now could be the best time ever to realize the power and flexibility that has been locked away in your term life policy.

If you have an expiring term life insurance policy and want to learn how you can convert it into cash, call Fairway Capital today at (800) 338-1035. Our team of experts will evaluate your current policy at no cost to determine if you are eligible for an early life settlement.

About the Author:
Kevin Yurkus is the president of Fairway Capital, a leading life insurance and financial services firm based in Newport Beach, California, serving clients nationally and internationally. Fairway Capital specializes in innovative solutions tailored to high net worth senior citizens, ranging from estate planning to life settlements. Contact Kevin at (800) 338-1035 or see the firm’s website at www.fairwaycapital.net.

As much as I like exchange-traded funds (ETFs), I frown when they become mispriced. This happens when the market price of an index ETF is different from its underlying net asset value (NAV). If an investor in such an index ETF needs to sell quickly, the mispricing may cause a bit of a financial hit.

In reality, the price of an index ETF “resembles,” but is independent of a fund’s NAV. For example, when there suddenly are more fund sellers than buyers, the market price of an index ETF may be lower than its NAV. With the recent market drops giving nervous investors a host of reasons to sell, the risk of such mispricing is heightened. I want you to be aware of this mispricing risk if you are thinking about buying index ETFs. If your plan is to buy and to sell quickly as a short-term trader, you face an increased risk of mispricing.

On the other hand, it also is possible for the market price of an index ETF to exceed its NAV when demand for fund shares temporarily exceeds the supply. This situation is not a problem for ETF sellers, as long as the buyers are willing to pay a premium to acquire the shares.

You also should be aware that “tracking errors” can occur. That situation can happen when an ETF pays out quarterly dividends that are received from the underlying stocks that it holds. However, the stocks held by the ETF may pay dividends to the fund throughout the quarter. As a result, an ETF may hold the cash received from the dividend payments, even though the underlying benchmark index does not hold any cash. This situation particularly applies to index ETFs known as HOLDRs that are organized as trusts. The HOLDRs cannot reinvest dividends, and must hold any dividend payments as cash.

Even though I am a big fan of ETFs, I want to be sure that you to know about the mispricing and tracking error issues that I just highlighted. Every investment has its strengths and weaknesses, so it is in your best interest to know the facts before investing your hard-earned money in anything.

Finally, you should not avoid investing in index ETFs just because of mispricing and tracking errors. However, I want you to be fully informed about these imperfections. Remember that I’m here to help guide you and it gives me great satisfaction to illuminate the path for investors who seek to invest in ETFs successfully.

How you can use your policy to help generate cash in a tough market.

By Kevin Yurkus, President, Fairway Capital

It’s a mad, mad, mad, mad world on Wall Street these days, and unless you’ve been buried under a veritable avalanche of rock for the last several months, you’re undoubtedly painfully aware of just how much damage has been wrought in the equity markets.

To put that damage into perspective, let’s look at a few vital statistics. Over the 12-month period from October 10, 2007 to October 10, 2008, the S&P 500 index plunged 43%. Foreign markets, as measured by the EAFE Index, sank 48%. Investment interest rates on the 10-year Treasury note dropped from 4.65% to 3.86%. Real estate/housing prices were down 9% nationwide and 11% in Arizona. Oil prices surged 25%, while blue chip stalwarts like Ford and General Motors shares plummeted 76%, and 87%, respectively.

Widespread consolidation and outright bankruptcies amongst big financial firms like Countrywide, AIG, Bear Stearns, Merrill Lynch, and Lehman Brothers have effectively remapped the entire banking landscape. And of course, we have yet to begin assessing the aftereffects of the federal government’s trillion-dollar bailout package.

Understandably, many investors are now wondering what to do and how they can stay ahead amidst this market descent.

So, what’s a savvy investor to do?

One strategy you can employ to help weather this market storm is to “maximize” your life insurance policy.

It’s estimated that approximately 73 million Americans currently have life insurance policies, yet I doubt many people know just how powerful a weapon your policy can be in the battle for maximum wealth appreciation.

Let me outline a couple of examples of how you can use life insurance to help protect and growth your wealth.

If you’re like me, I suspect that you have a low-cost term life insurance policy sitting in your desk drawer. In most cases, those term policies expire without paying a benefit. When the term is up, we simply allow our policies to cancel. After all, what other option do we have?

Fortunately, that term policy doesn’t have to be a dead asset. In fact, did you know that you have the option of selling an expiring term policy for cash? That’s right; there are firms out there that will buy your term policy from you.

You see, in recent years there’s been a burgeoning secondary market for term life policies, where Wall Street institutions such as Deutsche Bank, Credit Suisse, Berkshire Hathaway and others actually pay policy holders cash to purchase their life insurance policies. These institutions offer cash settlements in exchange for your in-force life insurance policy.

For example, I recently had a situation where a 59-year-old man had a $3.5 million convertible term policy he took out to protect his family from a devastating loss of income they’d suffer if something happened to him. The existing term policy was set to expire in less than a year.

He sold that policy to Wall Street banks for $400,000.

The math on how the value of a policy is determined varies from case to case, but what is important for you to know is that because of this new secondary market for life insurance, you may also be able to turn an expiring asset into real money.

Want another example? I recently worked with a 73-year-old male who had a net worth of $3 million. He had a universal life policy, but due to some smart estate planning he no longer needed the asset protection that policy was designed to supplement—and of course, he preferred not to have to continue paying those insurance premiums.

This gentleman sold his policy for $469,015.

You see, because of the tremendous growth of the secondary insurance market in recent years, insurance policies no longer have to be looked at as expiring and/or essentially worthless agreements.

Many savvy investors now realize the true value of their life insurance policies, and in many cases that value is literally locked up in their home safe. Because of the secondary market for insurance—and with the right assistance from an experienced advisor—you too can turn your policy into virtual gold.

The fact is that these days, life insurance is an asset class. And given the current decline in traditional asset classes like stocks and bonds, now could be the best time ever to “maximize” your insurance policy by turning it into cash.

About the Author:
Kevin Yurkus is the president of Fairway Capital, a leading life insurance and financial services firm based in Newport Beach, California, serving clients nationally and internationally. Fairway Capital specializes in innovative solutions tailored to high net worth senior citizens, ranging from estate planning to life settlements. Contact Kevin at (800) 338-1035 or see the firm’s website at www.fairwaycapital.net.

With the Fed loosening the money spigot through interest rate cuts and other monetary tools, inflation is becoming more of a concern for investors. When that happens, gold often becomes a safe haven investment.

If you are thinking about investing in gold, I advise caution for now. Gold is showing no clear sign of an upward trajectory. With the economy appearing to slow, inflation is not the only threat on the financial radar screen. Sure, you can keep potential gold investments in mind for when the time is right. But I personally don’t think that window of opportunity has opened yet.

For those looking to find gold-oriented funds to buy, I have uncovered four for you to keep on your personal “watch list.” Two of the funds, SPDR Gold Shares (GLD) and iShares COMEX Gold Trust (IAU), are exchanged-traded funds (ETFs) that go long on gold. Another is Market Vectors Gold Miners (GDX). The PowerShares DB Gold Double Short (DZZ) is an exchange-traded note (ETN) that is a double bet against gold.

Should you rule out any exposure to gold right now? Well, that call is up to you. I like to see 200-day moving averages go in favor of an investment before I recommend it, and gold does not meet that standard just yet. Indeed, the price of gold has fallen sharply recently. The price of gold had slipped to $743.27 an ounce, down $23.93 an ounce, by 11:40 a.m. EST today. In addition, the price of gold has fallen 20% since topping out earlier this month at $918 on Oct. 9.

What happened? Well, the gold sector can become overbought at times — especially when investors look to protect themselves from inflation. Many traders jump into and out of gold investments within just hours or days. Such trading creates volatility that is disconnected to fundamentals. A rising dollar can hurt gold prices and that factored into the commodity’s decline in value this month.

I understand that many investment commentators consider gold to be a hedge against the current market volatility. Well, the price of gold has not held up. This situation may change, but it hasn’t yet. For that reason, it seems premature to make a big bet on gold.

These days, it’s tough to tune in to the financial news TV networks or read the Wall Street Journal without an impending sense of doom. Sadly, I’ve had to watch the virtual destruction of our credit, equity, housing and capital markets unfold right before my very eyes.

It’s an overwhelmingly sorrow-laden experience for me, as I’ve witnessed our once-mighty capitalist experiment descend into a nightmare of government bailouts, regulations on short selling, federal purchases of commercial paper, and the overwhelming sense that all of this mess has somehow been caused by the free market.

Now I do not want to get too philosophic here, but I think that given the circumstances, justice and prudence demand that I come to the defense of freedom. You see, it really disturbs me that capitalism and the idea that government should not be involved in the economy is at the root cause of this whole financial quagmire.

Rather than pointing their fingers at capitalism, the Washington elite and the media intelligentsia need to start pointing the finger at themselves. To be certain, Wall Street avarice, unscrupulous business practices and some downright stupid decisions were made by investment banks, big mortgage lenders and financial insurers like American International Group (AIG). But these bad decisions were largely punished by the free market in the form of sinking equity values and corporate bankruptcies.

Who has not been punished in this fiasco, and who in fact is more powerful than ever, is the federal government. Led by both Democrats and Republicans, the pork-laden $700 trillion bailout bill finally made it through Congress and was signed into law by President Bush on Oct. 3. This bill gives unprecedented power to the same political elites that got us into this mess in the first place.

Starting years back with Congressional support for Fannie Mae and Freddie Mac, these agencies carried out the government-spearheaded mandate to lend money to those borrowers who were either unqualified to receive home loans and who were poor credit risks.

Then came Mr. Greenspan’s Federal Reserve reign, in which he cut interest rates to basically nothing. The chairman’s slashing of rates, along with the mandate imposed on Fannie and Freddie to lend to undesirable borrowers, combined to create an explosive cocktail that fueled the housing bubble—which inevitably led to the subprime mortgage explosion, the abhorrent leverage these loans were packaged and sold for, and the eventual collapse of the credit market house of cards.

The not-so-invisible hand of government intervention in the housing and capital markets is the real culprit here, and I am sick and tired of uneducated freedom haters blaming the free market and capitalism for what was clearly a government-created situation.

Enough said.

You already know we’re in the midst of the greatest financial crisis since the Great Depression. We’re living through a financial hurricane. I know many of you are feeling extremely anxious about your investments, your income streams and your financial future. That’s why I have posted my latest free seminar to download entitled:

The Election, The Markets, and Your Money
How to survive the credit crisis and the election
with your financial goals and assets intact.

Now more than ever, you must make the right moves to protect your assets and prepare for the difficult economic environment that lie before us. There will be new opportunities for those who take the right action now.

Click below to download the audio and workbook files:

Part 1: Windows Media I MP3 Download

Part 2: Windows Media I MP3 Download

Workbook

Powerpoint

Note: The information and opinions expressed in this seminar are for educational purposes only and should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor before making any change to your investment portfolio.

Subscribers to my investment newsletters know about my passion for exchange-traded funds (ETFs). During the past several months, I have provided you with features aimed at helping investors improve their portfolios with a variety of funds that are both diversified and cost efficient. Time and time again, I have praised ETFs: my favorite investment tool.

Today, however, I am going to point out a few disadvantages of trading ETFs.

I still believe that the positives far outweigh the negatives when it comes to ETFs. However, it is important for investors to understand both the pros and cons of any investment tool—especially in this ever-so-volatile market.

One of the reasons I think ETFs are a smart investment is their modest cost. ETFs offer low expense ratios, and annual expenses typically are deducted from dividends. ETFs also produce fewer capital gains and are more tax efficient than mutual funds. But investors must buy ETFs through a broker. Brokerage fees often can outweigh the low-cost tax advantages of ETFs. Therefore, ETFs probably are not for short-term investors who trade shares frequently.

In the past, I have noted that I love the simplicity and variety of ETFs. One downside of ETFs being so easy to trade, however, is that there is a risk that investors will move into sectors that they believe are hot—and then wait too long to sell. Often, individual sector funds lack the diversification to insulate you from taking a hit when that sector starts to retreat.

ETFs also can be limiting. Although the number and kinds of ETFs are growing everyday, there still are sectors or regions that have limited or no representation via ETFs.

There also is an increased volatility and market risk when trading ETFs. Many sector or single-country ETFs may be overloaded in one stock or have a large amount in its top 10 holdings. Investors also should consider the economic situation, currency risk, and political risk when investing in single-country ETFs.

Finally, ETFs still are relatively new. Investors should do their homework before investing in any ETF. Make sure your investment advisors are knowledgeable with investing in these unique funds.

After reading some of the disadvantages of trading ETFs, you might wonder why I am so enthusiastic about these funds. Despite the limitations of ETFs, I believe they are the most cost efficient and diverse investment tools now available to investors.

Remember that in volatile economic times like these, it’s important to invest with extreme caution—that holds true for any financial instrument, including ETFs.

Amidst all of the frenzy on Wall Street and Capitol Hill, it’s easy to forget that the third quarter is now over, and in about a week or so investors will be receiving their 401(k) and other financial statements.

To this is say—get ready for a huge dose of “statement shock.”

You are likely going to be in for a rude awakening, especially if you’ve been following the buy-and-hold recommendations of most financial advisors. You see, it’s not just the major market averages that have seen a huge decline in Q3.

If you own municipal bonds, high-yield closed-end funds, individual stocks, mutual funds, or just about any financial instrument, you’ll likely be staring at some really big losses.

These big losses are likely to lead to a wave of shareholder redemptions, as investors run for the exits. Unfortunately, for the recovery of the equity markets this means a much longer road to recovery.

Statement shock leads to redemptions, and redemptions mean selling pressure—and that means lower equity prices.

My friends, it’s a vicious circle, and until that circle is interrupted, a safety-first mindset is your greatest ally.

If you’re looking for a simple solution for today’s volatile markets, Fabian Wealth Strategies offers asset management services to high net worth individuals seeking growth, income or a combination of the two.

Simply click here or call 800-391-1118 to setup a consultation with me, Doug Fabian to review your portfolio and get my opinion on how to lower your risk in this market.

As much as I hate to tell you this, I think at this point Congress is going to have to approve this $700 billion dollar bailout proposal lest we face a virtual crash in our financial markets.

All of this talk about the next “Great Depression,” if we don’t act right now, likely will have a self-fulfilling prophecy effect if, in fact, Congress doesn’t act now to approve the plan to assume all that bad mortgage — and possibly other — debt.

What this effectively means is that Congress has a gun to its head — put there by Treasury Secretary Paulson, Federal Reserve Chairman Ben Bernanke and the rest of the banking system elites who — along with the politicos — were essentially responsible for getting us into this mess in the first place.

There is no way that in an election year, politicians are going to risk the accusation of inaction and/or aiding and abetting a financial collapse, so they will no doubt act hastily and try to ram through bad legislation aimed at putting the reins on the beleaguered financial industry.

I’ll have more on the root causes of this issue in the weeks ahead, but it’s suffice to say that when it’s all said and done, the economy and Wall Street will be changed permanently, and not, in my opinion, changed for the better.

As I’ve been saying virtually all year long, the safest place to be in these trying times has been in bonds and cash. If you’d like to find out how you can protect your wealth during this time of unprecedented financial turmoil, click here.

During the past several months, I have provided my readers with features aimed at identifying new funds, key sectors and important trends. I also like to go back to the basics once in awhile with something that I call ETF 101.

The idea is to provide a bit of instruction about ETF terminology and investing. I know that ETFs are new to many of you and I want to make investing in them as simple as possible. ETFs offer diversification and cost-effectiveness that is unmatched by most other investments, including mutual funds. For that reason, I want to explain key terms this week that will help ETF investors of all experience levels.

As regular readers of this feature know, one of my top goals as an ETF enthusiast is to simplify what may seem like complex investment terms to produce confident and well-informed ETF investors. For that very reason, I chose to define eight ETF terms this week that every ETF investor should know.

The following is a list of eight useful ETF terms, along with their definitions:

1. Leverage – This term is used to describe when an investor borrows capital to increase his or her potential returns. The use of leverage also raises the risk, so these kinds of funds require caution. In ETF speak, leverage usually refers to a fund designed to move twice as fast as its underlying index. Leverage can be used either on the long side, or the short side.

2. Ultra – This class of ETFs uses leverage to double the exposure to a particular benchmark index. For that reason, these kinds of funds also double the risk and the potential reward.

3. Short — In normal stock investing, this is the practice of an investor selling a borrowed security for the short term in hopes that it will fall in value before it is repurchased later for a reduced price. In ETF speak, short refers to a fund designed to move higher when its underlying index moves lower.

4. Commodity — An asset class featuring natural resources or agricultural goods that can be bought or sold through specially designed ETFs. For example, a commodity ETF may focus on a single kind of good and hold it in physical storage. A commodity ETF also may invest in futures contracts. One example of a commodity ETF is PowerShares DB Agriculture (DBA), which tracks the performance of the Deutsche Bank Liquid Commodity Index. That index consists of futures contracts on agricultural commodities, such as corn, wheat and sugar.

5. Index — A statistical measure of change in a market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Two major market indexes are the Dow Jones Wilshire 5000 and the iShares MSCI EAFE Index (EFA).

6. Volume – The number of shares or contracts traded in a security or an entire market during a given period of time. I tend not to recommend ETFs that do not have a daily trading volume of at least 100,000 shares.

7. Sector – A group of securities that are in the same industry or market.

8. Expense Ratio — A measure of what it costs an investment company to operate a given fund. The expense ratio is determined by an annual calculation that divides a fund’s operating expenses by the average dollar value of its assets under management.

I hope you agree that none of these terms are overly complicated. You now should have an improved grasp of key ETF asset classes and terms. Once you understand the kinds of ETFs that are available, you can better determine how best to use them to your advantage.

You know that the market’s in trouble when even safe investments aren’t safe anymore.

On Tuesday, we found out that one of the first-ever, largest money market funds put a seven-day freeze on investor redemption’s after the net asset value of its shares fell below $1. Yikes!

This is called “breaking the buck” in the money fund industry, meaning that a dollar just isn’t a dollar anymore. This is exactly what happened in the Primary Fund (RFIXX), managed by New York-based money market fund inventor The Reserve. The company announced late Tuesday that its $785 million holding of Lehman Brothers Holdings debt has been valued at zero. Double yikes!

As of Tuesday’s market close, the value of a Primary Fund share was 97 cents. That’s most-definitely not good when you expect that share to equal $1. News of the Primary Fund’s troubles basically caused a scurry for the exits, evidenced by the fact that at 3 p.m. on Tuesday, Primary Fund’s assets stood at $23 billion, a $40 billion hit from the $62.6 billion in the fund on Friday.

This is only the second time that I can remember a money market fund’s net asset value falling below $1. In 1994, Denver-based Community Bankers U.S. Government Money Market Fund returned 96 cents on the dollar to investors when bad derivatives investments forced it to liquidate. Well, the same thing, in essence, has happened here, and hopefully, this will be an isolated case.

To help assure its customers that their money is safe, some of the largest money-market fund providers already have tried to calm investors in the wake of The Reserve’s revelations.

Fidelity Investments, a company I really like, said that its money market funds are sound. “We can state unequivocally that Fidelity’s money market funds and accounts continue to provide security and safety for our customers’ cash investments,” said Anne Crowley, a Fidelity spokeswoman.

That’s good news, and very reassuring, especially if you are like me, and you have a substantial percentage of your investment portfolio allocated to cash.

The bottom line here is that safe is indeed safe when it comes to most money funds. However, as an investor, it is always your responsibility to make sure you find out what your money fund holds, and to make sure it isn’t about to break the buck.

In this election year we are going to hear a lot about tax cuts and tax hikes, but I believe there is a much bigger story being missed by the financial media. This bigger story is the likelihood that estate taxes are going to go up no matter who wins the White House.

Sen. Obama wants higher taxes on the wealthy—including those with estates in excess of $2 million. Sen. McCain will not likely be able to fight back a Democratic majority in Congress intent on levying bigger estate taxes.

I think that regardless of who wins in November, now is the time to get your estate plan in order. In the following audio special report, I cover what I call the seven deadly sins of estate planning.

For details on this issue I turned to Kevin Yurkus, president of Fairway Capital, and one of the smartest guys I know on the subject. Fairway Capital is a sponsor of my weekly radio show, and one reason why is because I trust Kevin’s judgment when it comes to all things estate planning.

If you have assets over $2 million, you MUST listen to this special report. In it we cover such deadly estate planning sins as:

1. Not having an estate plan
2. Not reviewing your plan annually
3. Not placing your assets in your trust
4. Not having the liquidity your estate needs to pay estate taxes
5. Delaying decisions and planning due to tax policy uncertainty
6. Not taking advantage of tax panning and wealth transfer strategies
7. Failure to properly utilize life insurance as a planning and liquidity tool

If you have estate planning concerns, or if you are guilty of even one of these seven deadly sins, then you owe it to yourself to listen right now.

If you’re interested in reviewing your estate plan or life insurance, I recommend that you contact Fairway Capital at 800-338-1035 or visit www.fairwaycapital.net

Some pundits are saying that we are in a recession; others call it a mere economic slowdown. In my opinion, what difference does this technical distinction make to you? The one thing everyone agrees on, bull or bear, is that we’re living in uncertain times. As a result, it is of the utmost importance for us to take a cautious approach. That’s why in this week’s ETF Talk I’m going to show you the ETF tools you can use to profit in a difficult market.

I want to start with a warning. I think there’s a market storm headed our way, and that means we all have to get ready to batten down our financial hatches. A key reason for my concern is that financials once again are on the decline. We now have entered a traditionally weak period for stocks that typically spans between August and November. We also have the looming uncertainty of the upcoming presidential election. Sure, my prognostication for more pain ahead could be wrong. And if we see an uptrend take hold I will revise my opinion. Nevertheless, my advice to stay cautious remains firm.

Two ETFs that I have been speaking about recently on the radio and on television are the iShares Lehman 20+ Year Treasury Bond fund (TLT) and the ProShares Short S&P 500 (SH). Both of these funds typically move inverse to the stock market. They can be used as a hedge against long positions or to profit from a decline in stock prices.

The iShares Lehman 20+ Year Treasury Bond fund (TLT) seeks results that correspond to the price and yield performance of the long-term sector of the United States Treasury market as defined by the Lehman Brothers 20+ Year U.S. Treasury index. TLT invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in the U.S. government.

At the close of the quarter on June 30, 2008, the fund had a one-year average annualized return of 13.37%. Also on that date, TLT had compiled an average annualized return of 6.75% since its inception during July 2002.

The ProShares Short S&P 500 (SH) seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily performance of the S&P 500 index. SH invests 80% of its assets in financial instruments that have economic characteristics inverse to those of the index.

As of the quarter ending June 30, 2008, SH had a one-year market price return of 18.15%. Since its inception in June of 2006, the fund had a market price return of 2.11%, also as of June 30, 2008.

Of course, there are no guarantees in life, just as there are none when investing in bonds and short funds. However, such investments can be used strategically to profit from markets on the slide. If you want to avoid simply riding the stock market down by hanging onto long positions, both of these funds are ones that you may want to consider.

The greenback is back!

That’s right, the value of the U.S. dollar versus rival foreign currencies has surged over the past several weeks, and that surge has caused quite the dust up in the international equity markets.

Just five weeks ago the dollar had been languishing at record lows against the euro. But last week the dollar hit a six-month high against the euro and a two-year peak against the U.K. pound sterling.

The chart here of the U.S. Dollar Index tells a revealing story.

So, why the quick turnaround in the greenback’s fortunes?

I think the basic reason is that the economies of Europe are slowing way down. In fact, the eurozone economy is now flirting with recession. To see the evidence of this we need simply examine the numbers. The 13-nation eurozone economy contracted 0.2% in the second quarter. That was the first decline since before the euro’s introduction in 1999, with the economies of Germany, France, and Italy all contracting.

Furthermore, inflation in the eurozone is running at almost double the European Central Bank’s (ECB) target rate, which makes it unlikely that the ECB will cut interest rates anytime soon. The result is that both European economies and the euro are likely to fall on hard times for a while.

Of course, the other result of the dollar’s surge has been a sharp sell off in international equities. Just look at the recent plunge in one of the biggest international exchange-traded funds (ETFs), the iShares EAFE Index (EFA). Year-to-date EFA is down 20.9%! Now that’s what I call an international bear.

Surprisingly, EFA is actually one of the best-performing international funds so far in 2008. The iShares MSCI Emerging Markets (EEM) has plunged 21.6% this year, and big international markets like China, as measured by the iShares FTSE/Xinhua China 25 Index (FXI), have collapsed 30.6%.

But it’s not just international ETFs that have been hit so hard this year. International equity mutual funds have also languished. Three of the biggest international mutual funds are the Oakmark International fund (OAKIX), down 19% for the year; Fidelity Advisor Diversified International (FDVAX), down 20.3%, and the Bernstein International Portfolio (SIMTX), which has fallen 23.1% year-to-date.

Not surprisingly, all three of these funds are on my Lemon List, the list of America’s worst performing mutual funds.

The bottom line here is that when the dollar is in a bullish mood, international equities tend to turn bearish.

The headline above may make you recall the classic movie “Out of Africa.” But even if you’re not a film buff, you need to know that Africa now has become a region with growing appeal for its intriguing investment opportunities. A case now can be made that Africa offers vast potential for economic improvement that could reward intrepid investors who are not timid about taking a bit of risk.

One of the newest opportunities for investing in the region is the Van Eck investment firm’s recently rolled out fund, Market Vectors Africa (AFK). The ETF launched during July, tracks the Dow Jones Africa Titans 50 Index. That index is used for companies that derive more than 50% of their revenues from 11 countries in Africa.

The ETF seeks to tap a fast-growing, emerging region that is becoming increasingly sought after by savvy investors who want to diversify their portfolios. The continent of Africa offers diversification by virtue of the array of the countries there. For example, the fund is most heavily weights companies in Nigeria, 25%; South Africa, 25%; Egypt, 13%; and Morocco, 11%. But the ETF also includes companies in Canada, Norway, Kuwait and the United Kingdom that conduct a majority of their business in Equatorial Guinea, Zambia, Angola, Mali, DR Congo, Kenya and Ghana.

Africa presents a unique growth opportunity for those willing to enter a new investment frontier for a chance at heightened returns. Just how big is the growth potential? Well, Africa boasts 15% of the world’s total population and 20% of the world’s land mass. Yet, the region currently is one of the world’s poorest and least developed. Expect that disparity between the developed countries and the developing African nations to change.
No, it won’t happen overnight. But it will take place in time.

Of course, I will keep my eye on the new Van Eck ETF for possible future investment. However, it currently has a limited track record and falls short of the trading volume of 100,000 shares a day that I like to see before entering a position.

Other reasons that I like the African region for investment exposure include increased trade flows, improved economic leadership, strengthening foreign demand for its goods, economic development initiatives and rising liquidity. At the same time, people in Africa are starting to enjoy increased incomes that will better enable them to buy cell phones, appliances, and cars. In addition, government policies and economic reforms are promoting growth.

The result is that Africa has enjoyed strong growth for much of the past decade. Sub-Saharan Africa’s economic growth has averaged 6% per year since 2004. The region also has produced the fastest pace of growth anywhere in the world during the past three decades. Growth during the last decade has been less volatile and more evenly distributed among the region’s countries than in the past.

As a result, I consider Africa a place to look to find emerging market investment opportunities—and the new Van Eck ETF might be one way to do so.

After having just come back from the latest MoneyShow in San Francisico, I want to share with everyone the three presentations that I conducted for hundreds of individual investors.

ETF Strategies In a Difficult Market

Some pundits are saying that we are in a recession; others call it a mere economic slowdown. The answer in my opinion is what difference does this technical distinction make to you? The one thing everyone agrees on, bull or bear, is that were living in uncertain times. As a result, it is of utmost importance for us to take a cautious approach. These ETF strategies in a difficult market will teach you the importance of managing risk, having a sell discipline, and benefiting from new opportunities.

Structuring a Portfolio for Income and Safety

How do you get a decent income return without risking your principal? Are you tired of putting your money in poorly paying CDs or money market accounts?  I reveal my favorite income producing tools in this presentation to boost the yield in your portfolio without taking on excessive risk. Learn how to use exchange traded funds, unit investment trusts, and closed end funds to properly manage your income assets.

Seven Secrets of Success for ETF Investors

In this presentation I reveal the seven secrets for successfully managing your portfolio using my favorite investment vehicle, exchange traded funds.  ETFs are simple, easy, inexpensive, diversified, and fun.  Learn how to manage any size portfolio using these proven methods to manage risk and maximize returns.

I am a financial guy, not a political pundit. I do, however, like to keep track of what’s going on in the political sphere for the simple reason that what happens in Washington D.C. can really impact what happens on Wall Street.

In my opinion, the problems facing the economy and the market are some of the biggest we’ve seen in decades. Unfortunately, I think both political parties are to blame. But assigning blame really doesn’t do anything to help fix our problems.

I read many political and market blogs on a regular basis and one of my favorites is Mish’s Global Economic Trend Analysis, written by investment advisor Mike “Mish” Shedlock.

Mish has been right on with respect to the credit crisis and the damage it has done to our economy. Recently Mish wrote a terrific and extremely thought-provoking piece he titled, “Open Letter to Obama.”

In this piece Mish recaps what he thinks is wrong with the U.S. economy, and he provides suggestions for the presumptive Democratic Party presidential candidate, Sen. Barack Obama, that detail the tough medicine needed to get this country out of the financial mess we’re in.

I warn you, you may be disturbed by what Mish has to say. But whether you agree or disagree with his views, I definitely think they are worth your perusal.

To read Mish’s thought-provoking comments on the troubled U.S. economy and what Sen. Obama should do to fix it if he becomes president, click here.

Want to here the latest update on my Lemon List, the list of America’s worst-performing mutual funds?

Well, now you can take a listen to my chat with Fabian Wealth Strategies vice president David Fabian, who presented me with the highlights (or should I say low lights) of some of the most egregious mutual fund offenders in what was a very tough second-quarter.

To listen in on my chat with David, click here.

Listen to the Windows Media File

Download the MP3

If you own a mutual fund, or if you were planning on buying a mutual fund anytime soon, I urge you to listen to this segment today. A little chat under the lemon tree could save you from a very sour-tasting portfolio down the road.

Making money in the market is not just a matter of buying a good stock, mutual fund or exchange-traded fund (ETF) and then watching it go higher. These days, you’re likely to have more success by investing on the short side of the equity ledger.

Now when I talk about investing on the short side, I am not suggesting you short stocks in the conventional manner. I do not want you to borrow shares of XYZ Corp. from you’re your broker and then hope the stock goes down so you can replace them in the open market later for a profit. That’s the old-school method of shorting.

These days we are blessed with ETFs, and in recent years there’s been a growing number of inverse, or short, ETFs designed to move in the opposite direction of not only the major market indices, but also of specific market sectors.

The table below shows just how many great options you have to short this market with ETFs.

As you can see, the wider market decline has certainly been a boom to many of these inversely correlated ETFs. These funds are designed to move higher when their respective indexes move lower. But the funds in the list above don’t just move in concert with their respective indices.

The funds listed here are “Ultra” funds, which mean they move twice the inverse of their respective index. For example, the first fund listed here, the ProShares UltraShort QQQ (QID), moves twice the inverse of the NASDAQ 100 index. That means if the NASDAQ 100 falls 2%, QID will rise 4%.

In a tough market environment, one that’s constantly characterized by a consistent downtrend in equities, it behooves you to think about how to make money on the short side.

One note of caution here is that investing on the short side is not for the faint of heart, nor is it for the inexperienced investor. If you do want to buy some short ETFs, then I recommend you employ the following rules:

1. Only use a small percentage of your overall investment portfolio to go short. Depending on your risk tolerance, you’ll want to keep your short ETF purchases to between 10-25% of your total investment capital. Please do not risk the bulk of your portfolio on short, leveraged ETFs.

2. Define your risk. When investing short, you must employ strict stop losses and you must always protect yourself from a short position going against you. We have seen a lot of volatility in these ultra-short sectors, and although the trend so far in 2008 has been conducive to these funds, it’s by no means an safe or easy way to make a dollar.

3. Cover your short positions when the market is going your way, and not when it decides to go against you. If you are short and the market is having a big down day, then that’s the day to sell your position. When you are short, you want to sell into strength, and strength in a short position is when the major market averages are all substantially lower.

When the stock market is trending downward, it is difficult to know what to do. Amid the uncertainty is the proven benefit of owning dividend-paying stocks. Sure, the share prices of such stocks and equity ETFs can fall, but the dividend payments continue to generate income in both good and bad times.

Despite the current market gyrations, one intriguing new ETF that offers exposure to a growth-oriented foreign market and dividend income is the WisdomTree Middle East Dividend Fund (GULF). The new ETF began trading on July 16. The fund is based on the performance of the WisdomTree Middle East Dividend Index.

GULF gives investors exposure to approximately 70 dividend-paying companies listed in Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar and the United Arab Emirates. If you’re worried that oil prices will resume their upward trajectory after their recent pullback, the countries featured in the GULF ETF should benefit economically from such a trend. Oil certainly is a key commodity for Middle Eastern countries and their economies but this fund is not dependent on the performance of just one sector. In fact, its biggest exposure is to Middle Eastern banks and other financial stocks. That sector accounted for 49.61% of the fund’s assets as of July 29.

The fund’s second- and third-largest sector holdings are telecommunications services and industrials, respectively. Telecommunications companies drew 24.56% of the fund’s assets as of July 29, while industrials took in 11.37%. Clearly, this fund is diversified in ways that focus on the region’s overall growth opportunities and the kinds of companies that will benefit from continued Gross Domestic Product (GDP) gains.

Kuwait is the nation that has attracted the most investment dollars of GULF. The fund has put 27.73% of its holdings into Kuwaiti companies, while the United Arab Emirates, with 18.12%, and Egypt, with 12.69%, round out the top three countries where GULF has placed its investment funds.

I am not recommending this new fund right now, as it still is trying to build its trading volume to the threshold of 100,000 shares a day that I like to see before pursuing such an opportunity. You may want to hold off on investing in GULF until its trading volume increases, and until we see its price performance for the first four-to-six weeks.

Still, I think the idea of mining for dividends in the Middle East is sound, and I will definitely be keeping a close watch on GULF for all of us.

My latest quarterly Lemon List, a list of the worst performing mutual funds, is now available online.

And believe me; you don’t have to look very hard to find some very big, widely held mutual funds that have found their way onto the Lemon List in what was a very bad quarter for equities.

One of those widely held funds is the Fidelity Growth and Income Fund (FGRIX). This large-cap core equity fund has assets over $15 billion, and an expense ratio of 0.68%. In Q2 the fund lost a whopping 10.1%. Over the past 52 weeks FGRIX lost 24.08%.

Now compare this lemon fund with a comparable ETF like the SPDR S&P 500 (SPY). This ETF has $78 billion in assets, and an expense ratio of just 0.08%. In Q2 the fund lost 7.03%. Not great, but much better than FGRIX. Over the past 52 weeks SPY fell 15.6%.

As you can see, you would have been much better off investing in SPY than investing in FGRIX, and it would have cost you a lot less. Of course, in hindsight you would have been much better off with a 100% cash position over that same time period.

To get the complete Lemon List, absolutely FREE, simply go to www.mutualfundlemonlist.com.

If you find your mutual funds are underperforming their category average, you might need to do a little shaking of your own lemon tree. Of course, the first step is knowing if and what lemon funds you own, and that’s where my Lemon List can help.

As a subset of my lemon list research I have decided to pick out a broadly held mutual fund family and rate their funds according to objective criteria.  The American Funds is one of the biggest fund family’s in the nation with thousands of investors assets in their care.

You can download my American Funds research report by clicking here.

I have ranked these funds by Lemon Funds (the worst performers), Average Funds (the mediocre group), and Good Funds (those who consistently beat their benchmarks).  I was not surprised to see that the number of funds is almost equally split between under performers and out performers.

As I tell my listeners and readers each week - you have to know what you own and you have to be monitoring the performance of your fund holdings on a regular basis.  Especially in a Bear Market environment!  That way you are able to make informed decisions about your retirement assets.

If you have investable assets of more than $250,000, my offer to you is to schedule a free, no-obligation, one-on-one conversation with me about your current mutual fund holdings. I will go over your portfolio with you in detail, and let you know what I believe is the best course of action to help protect and grow your money.

Fabian Wealth Strategies is currently accepting new clients in both our actively managed growth and income portfolios. We are asset managers that invest almost exclusively in exchange-traded funds (ETFs) for our clients, and we can help you create a vision of success for your financial future. Contact us today at 800-391-1118 or visit www.fabianwealth.com.

If you’ve been following the earlier installments in this series, you should know that there are options available to homeowners who find themselves with no equity. Please know that it is important for anyone who ends up on the wrong side of the real-estate downturn to investigate all of their options, get expert advice and make sound decisions. While it may be tempting to throw your hands up and quit, the long-term consequences are too significant to not make every effort to resolve the situation as positively as possible.

When considering those consequences, be aware that there are two primary negative impacts from a foreclosure. The first consequence is the possibility of financial liability after losing the home. Since the laws governing foreclosure vary greatly from state to state, you must consult a local expert familiar with the guidelines you will face. For example, California is a trust deed state that relies on non-judicial foreclosures. Without getting in to the specifics of what those terms mean, the bottom line is that a lender can not recover any losses resulting from the default of a mortgage used to purchase a home.

On the other hand, Florida relies on judicial foreclosures, which expose defaulting homeowners to the risk of a lender lawsuit seeking to recover losses. To complicate matters, refinance loans to take cash out — especially home equity lines of credit — are treated differently, allowing the holders of defaulted loans to seek damages from the borrower even after the home has been taken.

This is why it is critical that you consult a local expert familiar with the laws governing your state and your specific situation. But regardless of your state’s laws, lenders are willing to negotiate and work with defaulting borrowers, as a cooperative homeowner will result in a smaller net loss to the lender. Find a real-estate expert who knows the laws, knows the lenders and knows how to negotiate.

The second negative impact of losing a home is the effect on your credit. Looking back to the options available (loan modification, short sale, deed in lieu of foreclosure, foreclosure), the further you move down this scale towards foreclosure, the worse the impact will be on your credit score and the longer lasting the score reduction will be.

Since the credit bureaus are constantly tweaking their scoring models, it is very difficult to say how large an impact each option will have on your score. However, it is safe to say that avoiding foreclosure and any deficiency judgment will go a long way in terms of protecting your score and allowing it to heal as quickly as possible.

When someone is facing foreclosure, the thought of buying another home is likely the furthest thing from their minds. Eventually though, most people will want to own a home again someday. With the subprime market in shambles, a foreclosure will likely mean not being able to qualify for a mortgage for at least two years. In addition, you probably will need to get your scores back above 620. The less damage you do to your credit during the foreclosure or short sale process, the easier it will be to recover.

I know this is a difficult subject with many things to consider, but hopefully we have given you a better understanding of the options available, even in the direst of situations. While the decisions you end up making are very personal, we are here to help. If you have any questions on this subject, feel free to contact my real estate expert, Josh Lewis, via email or by phone at 888.944.5674.

With all of the worries about bank solvency in the news headlines, I was fortunate to come across a website that rates the safety and security of banking institutions.  I encourage all of my listeners and readers who might be fearing for the safety of their money to check out http://www.bankrate.com.

The reputable Bankrate.com describes their mission as “A proprietary system designed to provide information on the relative financial strength and stability of U.S. commercial banks, savings institutions and credit unions.”

I believe that everyone should not only be monitoring the health of their financial institutions, but also taking proactive steps to ensure their money is diversified and easily accessible.   Hopefully this tool will be useful in monitoring your savings.

This came across my desk courtesy of one of my favorite ex-pat internet radio listeners all the way from Japan.  Thanks again Russ!

Doug

The simplest definition for ETFs is that they are index funds that trade on the stock market exchanges. An ETF consists of a virtual basket of stocks that usually tracks a specific index or sector. To put it another way, ETFs are like a homologous species of mutual funds that allow investors to buy into a specific area of the market without all of the hassles, management fees and trading restrictions imposed by traditional mutual funds.

ETFs and mutual funds are similar in that they both offer access to an underlying pooled portfolio of assets. Both offer instant diversification, and both give you the ability to invest in the domestic and international markets, as well as in specific market sectors.

ETFs and stocks are similar in that they are both bought and sold on an exchange-NYSE, Amex or NASDAQ-throughout the trading day.

Keep in mind that like stocks, you must pay brokerage commissions to buy and sell ETFs. However, there are no sales loads on ETFs like there are on mutual funds, and internal expenses are typically far less than those of comparable mutual funds.

4 Main Benefits of Using ETFs

Benefit #1: Lower Expenses

While the Fabian family have been big advocates of mutual funds for the past three decades, most mutual funds are just not cutting it when it comes to performance. The number one reason for this stems from a mutual fund’s high annual expenses.

Because the managers of ETFs are not actually buying and selling stocks (and generating exorbitant fees along the way) in an effort to outsmart the market, ETFs have it all over mutual funds when it comes to lower expense. The average annual expense for a mutual fund is approximately 1.07%, while the average annual expenses for ETFs range between 0.1% and 0.6%.

Saving 0.5% to 1% doesn’t sound like much on the surface, but when it comes to a portfolio in excess of $500,000, this could be a savings of $5,000 a year.

Benefit #2: Liquidity

ETFs are as liquid as individual stocks. One of the biggest struggles we have with mutual funds is they only price at the end of the day. We feel this exposes your serious money to potentially devastating losses should the market have a significant one-day drop. Since ETFs trade like stocks, they offer the ability to buy or sell any time of the day. This provides investors with some added flexibility, along with the reassurance that they don’t have to wait until the end of the trading day to get the price of their investment.

Benefit #3: Global Opportunities

There are over 600 ETFs out there to choose from, and that number is growing rapidly. But ETFs are not just relegated to the domestic stock market. There are currently more than 130 ETFs focused on the international markets. From broad-based international indexes to emerging markets to country-specific ETFs, the panoply of global ETF offerings allows investors a way to get exposed to some of the alternative market segments out there.

Benefit #4: Instant Diversification

Like mutual funds, ETFs provide investors with instant diversification. Because ETFs usually mirror the performance of a particular market sector index, you get the diversification of owning every company in that index. For example, if you were to buy the SPDR 500 ETF, you in essence get the diversification of owning 500 of the world’s biggest companies.

These are just some of the reasons why Fabian Wealth Strategies trades a large portion of our portfolios using Exchange Traded Funds.

One of the greatest satisfactions that I receive is from highlighting key investment trends and passing them along to you before the rest of the investing world discovers them. A key development that I want to share with you this week is the rapid growth of exchange-traded notes (ETNs).

Any regular reader of my ETF Talk features knows that I love exchange-traded funds. Indeed, if you have any questions about ETFs that you’d like me to answer, click here. Today’s focus on ETNs is intended to profile a relatively new way to invest in sectors such as commodities.

ETNs started to surface last year, and they now are beginning to proliferate. How quickly are ETNs growing? NYSE Euronext had just seven ETNs listed on its exchange on June 30 last year. On the same date this year, the exchange had 76 ETNs registered. That’s quite a jump!

Why are ETF providers rolling out their own ETNs? One reason is that the structure of ETNs avoids certain disadvantages of ETFs in investing in particular asset classes, such as commodities. ETFs based on commodity futures can incur potentially big tax liabilities before gains have been realized by the shareholder, while ETNs currently only incur tax liabilities upon the sale of shares. As a result, ETNs quickly are becoming viable alternatives to commodity ETFs.

The key is to know when to use ETNs. ETFs still offer enviable diversification and low expense ratios when compared to mutual funds and virtually any other investment. An important consideration with ETNs is that they take the credit risk of the issuer, while ETFs do not. For that reason, you need to be careful to use creditworthy ETN issuers. It is not unlike trying to ensure you only buy an annuity from a financially strong provider.

ETNs, unlike ETFs, do not own a slice of an investment portfolio. ETNs are forward contracts that a provider such as Barclays or Deutsche Bank guarantees to pay off at maturity, based on the performance of an index that the ETN tracks. ETNs, in contrast to ETFs, are issued as senior debt by the fund company. ETNs track the performance of their underlying indexes and the issuer deducts a management fee. ETFs also deduct a management fee but their performance can fall below that of a given index.

In the ETF Talk feature that we distributed on April 30, my team and I reported our discovery of a significant tax problem for individual investors who use taxable dollars for their commodity ETF purchases. If you trade such commodity ETFs in tax-deferred accounts, you should be able to escape the tax problem that affects investors in funds such as PowerShares DB commodity ETFs and others that do not take delivery of the commodity itself.

For commodity investors who want an alternative to ETFs to avoid receiving any K-1 forms that could include high tax liabilities, Deutsche Bank, for example, is offering ETNs that invest in commodities. Barclays is doing so, too. Other fund companies also are getting into the action. A plus for tax-conscious investors is that the returns of ETNs are reported on 1099 forms. In addition, the ETNs have the same investment reporting transparencies as ETFs. Some of you may recall that I highlighted key advantages of commodity ETNs in my April 30 ETF Talk feature, ETF Talk: Avoid the Tax Trap of Commodity ETFs.

The growing popularity of ETNs was on display June 25, 2008, when 11 new Barclays iPath Exchange Traded Notes were listed on NYSE Euronext. Those ETNs included one linked to the global price of carbon. iPath Global Carbon ETN (GRN) is the first ETN designed to provide investors with exposure to greenhouse gas prices tracked by the Barclays Capital Global Carbon Index Total Return.

The other 10 new Barclays ETNs unveiled on June 25 also offer investors exposure to sub-indices of the Dow Jones-AIG Commodity Index Total Return. The following table lists all of the new funds and their individual tickers.

Welcome to Part II in our series on what to do if yo