ALL my savings in ETF's is dangerous

[frugal]

Hello,

I am now feeling disconfortable putting all my portfolios in financial markets - ETFs

I imagine that,

- the ETFs can go broke, is there any possibility of disaster of these instruments?

- the broker where i will have the portfolios bankrupt, is there any chance of losing the assets in my portfolio?

- my gold is not going to be physical, one more etf

- my cash in Euros had already better days :-(

- opening bonds in a more stable country makes me put the money in germany, foreign country.

So many bad points:-(

Let me know your opinions about these problems.

I still do feel i should diversify to reduce risk. For example, CDs, real state physical, EU PP, US PP, what else?

Thank you.

[AdamA]

I still do feel i should diversify to reduce risk. For example, CDs, real state physical, EU PP, US PP, what else?

I think the best thing to do is to diversify.  Hold some physical gold, use a couple different ETF's, use some different brokers, different stock index funds, etc.  This really helps to cut down on the worry. 

[Pointedstick]

Those are very legitimate worries, frugal. ETFs are for convenience, not safety, but I agree that Adam that diversification can help. I have a single All-ETF PP, and two others that have some ETFs and some directly-held assets (individual bonds and bullion). But the ETF and mutual fund assets that aren't directly held are issued by a variety of different companies (Vanguard, iShares/BlackRock, Schwab, the GTU folks, etc) and held in multiple brokerages (TDAmeritrade, Vanguard, Schwab, and eTrade). Between the diversely-held ETFs and the directly-held gold and bonds, I sleep very well at night. 

[Peak2Trough]

I think the best thing to do is to diversify.  Hold some physical gold, use a couple different ETF's, use some different brokers, different stock index funds, etc.  This really helps to cut down on the worry.

+1

[frugal]

Thank you all!

So, what other things can we do to put our savings?

I dont think that normal PP user diversifies a lot...

Land, CD, EU.PP, US.PP, VP, where else ?

[Pointedstick]

Thank you all!

So, what other things can we do to put our savings?

I dont think that normal PP user diversifies a lot...

I do! The PP is actually one of the most diversified portfolios out there, especially if you directly hold the bonds and gold. Compare that to what most people invest in, which usually consists of a hodgepodge assortment of stock and bond funds. Much less diversification!

Other assets such as real estate can make reasonable additions to your VP. I'm not sure I really ever see the use for bank CDs, though. At least in the USA, they typically offer interest rates barely higher than those offered by high-yield online savings accounts, but with substantially less liquidity and no extra safety.

[frugal]

Hello,

1st - GOLD and BONDS directly is perfect. Unfortunately for the EU-PP I don't think I can.

2nd - what do you think about opening an account in INTERACTIVE BROKERS for the VARIABLE Portfolio ? Do you think it is safe for a foreign citizen? If any problem exists (broker banrupcy or State problems) I feel it will be very difficult to handle and recuperate assets.


Best regards

[k9]

Anything between you and your money is at risk. An ETF puts you at risk on many levels : the actual assets held by the ETF (i.e. actual stocks or bonds held) can be worth nothing, the ETF provider can fail, so does your broker. When you hold gold through an ETF, the ETF provider can fail, your broker too (cf MF global).

For stocks, I think it's worth the risk, though, as it will give much better results than stock picking.

For bonds... Well, bonds are here to protect you when everyone is defaulting on every one's debt, so that seems a little risky, and you're not trying to diversify, so an ETF is just adding fees and a counterparty risk.

For gold, it's even worse. I really think holding gold through an ETF is anti-PP. You hold gold to protect against inflation, but also because it's money your government can't reach and it's a real asset. Letting it be a virtual asset that can be defaulted on is a huge risk I think, worse than chasing yield for your cash or your bonds. I can understand having a few percents (say, 2 or 3 % of your 25%) for rebalancing, though, but even that means losing some security for some more yield.

Why do you say you can't own gold directly ? I guess in Portugal 20 Francs coins or British Sovereigns are easy to buy / sell, right ?

[clacy]

frugal,

If I'm not mistaken you are European.  I believe that many ETF's in Europe are synthetically constructed, which is important to consider as these would be much more dangerous, IMO.

[frugal]

frugal,

If I'm not mistaken you are European.  I believe that many ETF's in Europe are synthetically constructed, which is important to consider as these would be much more dangerous, IMO.

Hi,

Why? And what is the solution for a european citizen.

Regards

[frugal]

Why do you say you can't own gold directly ? I guess in Portugal 20 Francs coins or British Sovereigns are easy to buy / sell, right ?

Hello,

That has a big spread and higher cost, to buy real gold coins!?

Where do you think i can buy that?

Tks

20 Francs Francais -Marianne, Rooster, Ouro

291,08 €

247,77 €

[k9]

I don't know if I'm allowed to talk about commercial websites here, so moderators please warn me if what I'm doing is wrong, but coininvestdirect (google will give you their precise url) sells bullion coins in Europe at rather good prices (20 francs Vreneli : buy 254, sell 269, + shipping of course). That's the only website I'm using to buy these coins (beside local dealers & acquaintances). It's a little more expensive and less liquid than an ETF, but that's the price of safety (regarding defaults or spoliation).

As for why synthetic ETF are less safe than regular ones : these ETFs don't hold the assets they are supposed to. They are instead buying options & other assets that provide the same result with less volatility and less charges, if everything works fine. Of course, if something goes wrong, these strategies might fail and you might not get your money back.

[Tyler]

For those who like ETFs for their convenience, just diversify the fund families. Something like VTI, TLT, SGOL, and SCHO builds a firewall so that any problem with an ETF supplier is limited to 25% of the portfolio. Personally, I'd even take steps to make sure directly held bonds aren't with the same company as another asset (VTI + LT bonds and ST treasuries all through Vanguard wouldn't help me sleep any better, no matter how great a reputation Vanguard has). 

[clacy]

frugal,

If I'm not mistaken you are European.  I believe that many ETF's in Europe are synthetically constructed, which is important to consider as these would be much more dangerous, IMO.

Hi,

Why? And what is the solution for a european citizen.

Regards

frugal,

I'm certainly not an expert on the subject or the safest way to invest in the European  PP.  But I have read a couple of articles that note the high rate of synthetic ETF/ETN's in Europe.  I'm sure it's because they have more lax regulations.

Just be sure to do your homework.  I know I would sleep better at night not holding any synthetic products.

[frugal]

I don't know if I'm allowed to talk about commercial websites here, so moderators please warn me if what I'm doing is wrong, but coininvestdirect (google will give you their precise url) sells bullion coins in Europe at rather good prices (20 francs Vreneli : buy 254, sell 269, + shipping of course). That's the only website I'm using to buy these coins (beside local dealers & acquaintances). It's a little more expensive and less liquid than an ETF, but that's the price of safety (regarding defaults or spoliation).

As for why synthetic ETF are less safe than regular ones : these ETFs don't hold the assets they are supposed to. They are instead buying options & other assets that provide the same result with less volatility and less charges, if everything works fine. Of course, if something goes wrong, these strategies might fail and you might not get your money back.

k9,

amazing answer.
Where do you keep you Gold? At home?

For those who like ETFs for their convenience, just diversify the fund families. Something like VTI, TLT, SGOL, and SCHO builds a firewall so that any problem with an ETF supplier is limited to 25% of the portfolio. Personally, I'd even take steps to make sure directly held bonds aren't with the same company as another asset (VTI + LT bonds and ST treasuries all through Vanguard wouldn't help me sleep any better, no matter how great a reputation Vanguard has). 

Tyler,
I didnt understand whether did you diversify using only 4 ETFs.
Thanks for clarifying me.

frugal,

If I'm not mistaken you are European.  I believe that many ETF's in Europe are synthetically constructed, which is important to consider as these would be much more dangerous, IMO.

Hi,

Why? And what is the solution for a european citizen.

Regards

frugal,

I'm certainly not an expert on the subject or the safest way to invest in the European  PP.  But I have read a couple of articles that note the high rate of synthetic ETF/ETN's in Europe.  I'm sure it's because they have more lax regulations.

Just be sure to do your homework.  I know I would sleep better at night not holding any synthetic products.

Clacy,
thanks for the advice.
I will pay attention to that point and avoid synthetic ETFs

[Tyler]

Here's what I meant. 

ETF - Fund Provider

VTI - Vanguard
TLT - iShares
SGOL - ETFS
SCHO - Schwab

That's 4 asset classes managed by 4 separate companies. Yes, an ETF has more risk than directly holding the assets but by dividing your money across multiple ETF providers you help minimize your exposure should a provider ever have an issue.  Holding those four (or perhaps another four like Pointedstick) in two separate trading accounts (like Fidelity and TDAmeritrade, for example) is even safer.

My secondary point was that just because you avoid ETFs doesn't automatically eliminate counter party risk. 

VTI - Vanguard
Direct LT treasuries - Vanguard
Gold - bullion
Direct ST treasuries - Vanguard

In this situation, even though you've reduced ETF risk, if Vanguard ever had an issue then you'd still be exposed with 75% of your money.  Not that I think that's likely, but stranger things have happened.  I'm a fan of diversity.

One thing I like about the PP is that its promoters often spend time splitting hairs over what's safer rather than what makes more money.  There's still risk any time you invest, however, so my personal approach is to try to be smart about it and find that balance between paranoia that keeps me safe and laziness that keeps me from actively trading and losing money.  ; ) So for now, a few strategic ETFs serve my purposes pretty well.

[k9]

I don't know if I'm allowed to talk about commercial websites here, so moderators please warn me if what I'm doing is wrong, but coininvestdirect (google will give you their precise url) sells bullion coins in Europe at rather good prices (20 francs Vreneli : buy 254, sell 269, + shipping of course). That's the only website I'm using to buy these coins (beside local dealers & acquaintances). It's a little more expensive and less liquid than an ETF, but that's the price of safety (regarding defaults or spoliation).

As for why synthetic ETF are less safe than regular ones : these ETFs don't hold the assets they are supposed to. They are instead buying options & other assets that provide the same result with less volatility and less charges, if everything works fine. Of course, if something goes wrong, these strategies might fail and you might not get your money back.

k9,

amazing answer.
Where do you keep you Gold? At home?

I don't have a lot of gold yet, so renting a safe would be quite silly. So yes, it's well hidden deep in my garden. I guess you can hide it in a flat too, but that seems a little more risky, depending on where you live precisely.

When I'll have a lot more, I'll put most of it in a safe at the bank and in a few safe places, at my house or at relatives'.

As for ETF available in Europe, I know most of iShares and SPDR ETF are physical ones.

[frugal]

Here's what I meant. 

ETF - Fund Provider

VTI - Vanguard
TLT - iShares
SGOL - ETFS
SCHO - Schwab

That's 4 asset classes managed by 4 separate companies. Yes, an ETF has more risk than directly holding the assets but by dividing your money across multiple ETF providers you help minimize your exposure should a provider ever have an issue.  Holding those four (or perhaps another four like Pointedstick) in two separate trading accounts (like Fidelity and TDAmeritrade, for example) is even safer.

My secondary point was that just because you avoid ETFs doesn't automatically eliminate counter party risk. 

VTI - Vanguard
Direct LT treasuries - Vanguard
Gold - bullion
Direct ST treasuries - Vanguard

In this situation, even though you've reduced ETF risk, if Vanguard ever had an issue then you'd still be exposed with 75% of your money.  Not that I think that's likely, but stranger things have happened.  I'm a fan of diversity.

One thing I like about the PP is that its promoters often spend time splitting hairs over what's safer rather than what makes more money.  There's still risk any time you invest, however, so my personal approach is to try to be smart about it and find that balance between paranoia that keeps me safe and laziness that keeps me from actively trading and losing money.  ; ) So for now, a few strategic ETFs serve my purposes pretty well.

Tyler,
good answer!

I'm in Europe so I don't have that possibility to diversify in a EUR PP 

What do you think if I open a US account to create a US PP ? Is it safe to have my money at TDAmeritrade?

Thanks

I don't know if I'm allowed to talk about commercial websites here, so moderators please warn me if what I'm doing is wrong, but coininvestdirect (google will give you their precise url) sells bullion coins in Europe at rather good prices (20 francs Vreneli : buy 254, sell 269, + shipping of course). That's the only website I'm using to buy these coins (beside local dealers & acquaintances). It's a little more expensive and less liquid than an ETF, but that's the price of safety (regarding defaults or spoliation).

As for why synthetic ETF are less safe than regular ones : these ETFs don't hold the assets they are supposed to. They are instead buying options & other assets that provide the same result with less volatility and less charges, if everything works fine. Of course, if something goes wrong, these strategies might fail and you might not get your money back.

k9,

amazing answer.
Where do you keep you Gold? At home?

I don't have a lot of gold yet, so renting a safe would be quite silly. So yes, it's well hidden deep in my garden. I guess you can hide it in a flat too, but that seems a little more risky, depending on where you live precisely.

When I'll have a lot more, I'll put most of it in a safe at the bank and in a few safe places, at my house or at relatives'.

As for ETF available in Europe, I know most of iShares and SPDR ETF are physical ones.

- Put it in your toolbox.

Do you know any other site like coininvestdirect ?

Regards