- Published on Wednesday, 03 October 2012 15:22
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 499
Few folks understand the dynamics of ETFs. They think they are safe and effective. But in reality, these funds are just the latest in Wall Street gimmicks.
I am no fan of ETFs. Despite the hoopla and the incredible amount of cash that flows into funds of all shapes and sizes each day, I am convinced they are merely the latest of Wall Street traps.
They lure you in with the pleasant smell of an easy meal... then torture you with a miserable, slow death.
Flip through the pages of any of the industry's professional rags, and you'll see what I mean. Instead of flashy new-car ads, the glossy pages reflect the latest incarnations of Wall Street's oh-so-clever marketing department.
You can buy a global warming ETF. There's a merger-arbitrage ETF... a spinoff fund... an IPO fund... a currency carry fund... even a foreign market, low-volatility dividend fund.
And soon... a couple of diamond funds?
Now, if you know me, you know I love investing in diamonds. They offer the ultimate in portability. Their track record is untouchable. And, unlike the gold market, diamonds aren't steered by the herd.
But a diamond fund is a preposterous idea. In fact, the troubles with the fund are exactly why I like diamonds as an investment.
As I write, the fine folks at the SEC are reviewing a proposition from fund creator IndexIQ. If it gets the nod, the company will become the first ever to debut an ETF backed by diamonds. But there are a lot of questions to be answered before IndexIQ can reach into the portfolios of mom-and-pop investors across the country.
The biggest question is the most obvious. How in the world do we measure this thing?
I can tell you the price of gold at any instant. Right now... an ounce goes for $1781.30.
But what's a diamond cost? I dunno. My diamond isn't the same as your diamond.
Every diamond is different. These gems aren't like gold or silver, in which an ounce from one mine is the same as an ounce from another. But ETFs need to be infinitely dynamic. They need to expand and contract with the market.
Without a standardized commodity, it's impossible. And any ETF that tries to artificially standardize diamonds is creating an immensely dangerous fund.
But again, that's why I like diamonds. They aren't a commodity. Diamonds are art.
As diamond investors, that's our advantage. The value of these gems can't be replicated by an ETF. The security that comes with a diamond... comes only with a diamond.
And the world's smartest investors know it.
I came across a statistic in my research that blew me away. Right now, over 70% of affluent investors include precious gems in their portfolios. Before the 2008 meltdown, that figure was barely above 55%.
But what's even more important to note is that gems like diamonds make up an average of 5% of the richest portfolios -- in line with their stakes in gold.
So while everybody frets over the price of gold, the savviest of investors are piling into alternatives. In my newsletter Unconventional Wealth, we are taking advantage of the trend. I found a little-known way to invest directly in diamonds without having to write a seven-figure check. In fact, we've done it for less than $12.
Here's the takeaway. ETFs are dangerous. They are a marketing tool... just another Wall Street creation designed to slowly part you and your money.
The world's wealthy elite don't waste their money with ETFs. They find the smart alternatives.
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