Long Run ETF Investment Strategies

Long term ETF strategies are based on those exchange traded funds that track the progress of either long term bonds such as 30 year corporate, or 30 year treasury bonds. They may also be based on the outlook of the overall market in terms of the S&P 500, Russell 2000 or other equity market indices. Long term returns for investments have specific strategies based on the nature of the underlying bond indices.

To be clear a long run ETF is based on those fixed income securities that have long maturities. Using these types of investments meet the strategic needs of an investor who seeks a return that is higher than that of fixed income securities with lower maturities. 

What Exchange Traded Funds Provide

Exchange traded funds provide an opportunity for the investor to participate in the performance of its backing asset or security without actually investing in the security. The basis for the exchange traded fund, traded mostly over the counter through the NASDAQ trading system is to be the same as the underlying index that it is following. ETFs by general rule do not seek to outperform the underlying asset and as such is a passively managed or unmanaged fund.

Investor Profile for Long Run ETF Investing

Although these exchange traded funds are based on long term debt securities it should be noted that the profile of the investor that purchases these funds is actually short term. What this means is that the investor is looking for a way to achieve the maximum amount of return with lowest amount of risk. This type of investor is a person nearing retirement or needs to meet some financial goal that is within a few years. Being in an instrument that is based on a security such as treasury bonds provides the investor with some safety of their principal and provides them with a higher potential return than being in short duration bonds.

Elements of a Long Run ETF Strategy

The long run ETF investment strategy seeks to find those funds that are true mirrors of their underlying index to provide the desired return and safety. This type of strategy will yield modest returns relative to more riskier exchange traded funds such as those in commodities, stocks or international stocks. This part of the trade off that exists between investment returns and preservation of principal. Both of these investment objectives cannot be achieved simultaneously. To experience 1, the other has to be sacrificed.

Costs Associated with the Long Run ETF Strategy

Aside from any required fund minimums that have to be established when investing in any ETF, you should take a close look at all costs that are associated with a relative ETF. The funds expense load, including commissions, fees and other charges should be lower relative to similarly actively managed mutual funds and other types of investments that the investment management  team takes a more active role with. Expenses should not exceed several percent relative to the overall assets being managed by the ETF.

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