PDF Make Your Own Gold Stocks ETF Mike Swanson (03/29/2017)

[Pages:4]Make Your Own Gold Stocks ETF--Mike Swanson (03/29/2017)

I did a PDF update a few weeks ago talking about potential drawbacks to investing in ETF's. You can read this update here:

wswreport03052017.pdf

Now I own ETF's and I still think ETF's

are good to trade. I'm not going to stop us-

ing the model rebalancing ETF portfolio sys-

tem, but there may be times when you may

choose to buy stocks instead of ETF's, espe-

cially if you are looking to invest in a sec-

tor and hold for several years.

A look today at whether it

The reason why is that despite all of is best in the long run to

the talk that ETF's have low fees the fact is buy ETF's or simply buy a

they still have fees! And most of them only

pay dividends once a year! And many of them basket of stocks the ETF

have 40% of their money in their top five holdings and then spread the rest of the

owns anyway....

money out into two or three dozen stocks.

There is nothing wrong with that in itself, but if you are investing in a sector what is the point of buying an ETF that is going to charge you a management fee and put 40% of that money into five stocks when you could just flat out buy those stocks yourself with a much lower one time trading commission and escapes those management completely?

Now as I write this update I own GDX, but I also decided to use one of my accounts to buy individual mining stocks instead of

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buying only the GDX ETF. And in the future I plan on buying more and more stocks from different sectors in this account as long-term investments.

I'm basically going to use this account to make my own ETF's by buying my own stocks so I'll get more dividends overtime in it than I would from just ETF's and escape the management fees.

I'm going to use this report to give you an example of buying stocks instead of an ETF with mining stocks and GDX. As I write this GDX is paying a dividend 0.24% and charges an annual management fee of 0.52%. You can see this information and the complete list of its holdings here:



Let's say you had $100,000 and instead of buying GDX you spread that money out into 15 of the big cap mining stocks like this:

Symbol - Investment amount - Dividend %

1)SLW ----------8,000 - 1.36%

2)RGLD --?-----8,000 - 1.42%

3)ABX---------- --8,000 - 0.63%

4)AEM--?---------8,000-- 0.93%

5)NEM-------------8,000-- 0.61%

6)FNV-------------8,000 - 1.36%

7)OR-------------- 8,000-- 1.09%

8)PAAS--------- 8,000-- 0.57%

9)NCMGY------- 8,000- 0.76%

10)EGO--

8,000-- 0.94%

11)AUY

4,000-- 0.72%

12)SBGL

4,000 4.91%

13)HMY

4,000 3.16%

14)DRD

4,000 6.56%

15)GFI

4.000 2.67%

Now notice every single one of these pays dividends higher than the 0.24% dividend rate that GDX does. If you were to buy GDX and hold it for a year you would be charged a $520 management fee over those twelve months

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and every month thereafter as long as you hold it. However, let's say your commissions are $10.00 a trade. Well if that were the case than it would cost you a $150 one time fee to buy these positions.

But the big payoff is in dividends. All together these positions would result in an annual dividend rate of 1.49% on the initial $100,000 investment.

Now GDX owns lots of small positions in a lot of stocks that don't pay any dividends at all and I'm looking here to add some small positions in a couple of African stocks with big dividends instead. GDX owns these stocks too BTW.

Getting a 1.59% dividend is a lot better than getting a 0.24% dividend. But the real deal comes if you multiple that year after year.

If you think beyond mining stocks and GDX to other sectors of the market such as bank stocks or energy stocks I think it's easy to see that buying ETF's is not necessarily the best way to really invest in the stock market despite the fact that right now it is the most popular thing to do.

Now it is much easier to trade in and out of ETF's than a lot of single stock positions. And one argument against buying individual stocks is that you have to pick them out. Well you don't necessarily need to do a lot of work doing that and the idea here is not to try to trade the individual stock positions, but simply make some changes once a year or so as a normal part of account rebalancing.

ETF's are not trying to manage the individual stock positions anyway. If you buy 30 random stocks in a particular sector and just hold them you are pretty much going to match the performance of that sector over time. As evidence for this take a look at the DOW 30. It is 30 stocks and every single day the DOW Industrials average just about matches the performance of the S&P 500. All 30 of those stocks are inside the S&P 500. And if you look inside the DOW 30 you'll see in any given year some stocks are leading and doing great and others are lagging and often there will be some doing really bad. It's asset allocation that is key in the long-run with investing and buying stocks instead of simply piling money into an ETF is something I'm going to do more and more of going forward with my own money.

As of the time I am writing this and posting this on the site I own all of the stocks listed in this update. I may buy or sell them though at any moment and if you are reading this in the future I can't guarantee that I'll still be owning them at the time you are reading it.

Disclaimer

4

The goal of this portfolio is to

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any particular stock

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returns overtime and lowers the

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For more on how this strategy works

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a basket of stocks.

20% - CEF: Central Fund of Canada owns gold and silver bullion.

20% - GDX: Gold Stocks ETF.

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