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Phuket Finance: Using exchange traded funds

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Phuket Finance: Using exchange traded funds | The Thaiger
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PHUKET: In today’s uncertain economy, investors are increasingly seeking diversification, safety and a secure income. Interest rates continue to hover at or near all time lows in many countries, and the continued uncertainty about the strength of the global economic recovery has made many investors extra cautious.

Nevertheless, there is one investment option available that can offer risk-adverse investors both safety and income.

What ETFs are
Exchange-Traded Funds (ETFs) are investment funds that trade on global stock exchanges just like individual stocks.

They have been available to retail investors since 1993 in the USA and since 1999 in Europe.

Like mutual funds or unit trusts, ETFs may hold any type of asset class such as individual stocks, bonds or commodities and they can be bought or sold at the end of each trading day for their net asset value.

However, ETFs differ from many types of mutual funds or unit trusts in the sense that they usually track a specific index such as the S&P 500, the Telecommunications Services Index or the Japanese Nikkei 225.

What the benefits are
The major benefits offered by ETFs for investors include: transparency as their portfolios are priced throughout the day; diversification across an index or market, and tax efficiency – since ETFs do not need to buy and sell stock to cover investor purchases or redemptions. This also leads to lower expense ratios, since ETFs are not actively managed and have lower accounting, distribution and marketing expenses.

ETFs also come with the same features as stocks. They can be bought or sold during any part of the day as well as bought on margin or sold short. Investors can also trade ETFs using stop and limit orders in order to specify what prices they are willing to buy or sell at.

Finally, ETFs that invest in dividend paying stocks offer equity investors seeking income an additional measure of income safety as they do not rely on a single company’s dividend payout stream to generate income for investors.

The Vanguard Dividend Appreciation ETF, for example, is designed to measure the performance of common US stocks that have a history of increasing dividends for at least ten consecutive years.

The top ten holdings are Pepsi, Procter & Gamble, McDonald’s, IBM, Johnson & Johnson, Exxon Mobil, Coca-Cola, Chevron, Wal-Mart and United Technologies (see graphic above).

The fund has a very low expense ratio of 0.25% per year, currently yields 2.2% and is up 90% from the March 2009 low.

Types of ETFs to invest in
The use of ETFs has increased exponentially as they have gained popularity with investors.

However, there are a couple of categories of ETFs that ordinary retail investors should consider adding to their investment portfolio. These ETF categories include the following:

Index ETFs:
By their very nature, most ETFs are actually an index fund as they usually track a particular stock index. This tracking can be done by owning the individual equities that make up the index.

Some examples are theiShares Emerging Markets Fund, PowerShares NASDAQ Internet Portfolio and the iShares Thailand Index Fund.

Bond ETFs:
For fixed income investors, investing in bond ETFs will offer certain advantages as they can be less risky than owning an individual bond plus investors have the ability to profit during bear market downturns or recessionary times.

Commodity ETFs:
This category of ETFs will invest in commodities, which may include precious metals, such as gold or silver. However, investors need to be aware that commodity ETFs are generally not regulated by the Securities and Exchange Commission (SEC), although they may in fact be subject to regulation by the Commodity Futures Trading Commission and they need to fully understand how such funds attempt to replicate the performance of a particular commodity. This is because they may be invested in futures or other exotic investment vehicles.

Currency ETFs:
These types of ETFs are total return investment products where an investor will gain access to FX (foreign exchange) spot rates and local institutional interest rates for a particular country or region. Hence, investors can profit from higher interest rates or currency fluctuations between countries.

In addition to the above ETF categories, new and more exotic ETF products, such as actively-managed diverse ETFs and leveraged ETFs, have been introduced in recent years.

Before considering these new types of ETFs as investments, investors need to fully understand that new ETF products may be subject to additional risks, which traditional ETFs are not subject to.

ETF Benefits:
Low expense ratios; tax efficiency; portfolio diversification; transparency; easy to buy and sell; same features as ordinary stock eg: limit orders, options, and stop loss orders.

Conclusion:
Investing in ETFs can be beneficial for investors seeking diversification, safety and a more secure income. However, investors need to remember that ETFs are still equity investments and hence, they can be impacted by market volatility.

Therefore, if you are thinking of investing in ETFs, be sure to consult a qualified financial advisor who can advise you on how to select the right ETF investments that will fit into your current investment portfolio and match your particular investment needs.

Don Freeman is President of Freeman Capital Management, a registered investment Advisor with the US Securities Exchange Commission (SEC), based in Phuket, Thailand. He has over 15 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Tel: 089-970-5795 or email: freemancapital@gmail.com.

— Don Freeman

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Governments & old media versus social media – who will win? | VIDEO

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Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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The social media giants in battle with ‘old’ media and world governments | VIDEO

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The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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Turbulence ahead for Thailand’s aviation industry | VIDEO

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When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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