Feature

Making money: What the experts say

Dissecting ETF fees; Inflation insurance; Put your refund to work

Dissecting ETF fees
At first glance, picking the cheapest exchange-traded fund should be a cinch: Go for the fund with the lowest annual expense ratio, said Elizabeth Trotta in SmartMoney. But while that strategy makes sense for true buy-and-hold investors, it “could end up costing you more” if you’re a frequent trader. In fact, ETFs that don’t maintain a high volume may “have hidden costs.” The iShares MSCI Emerging Markets Index fund, for example, has an expense ratio nearly three times higher than that of the comparable Vanguard Emerging Markets ETF. “But traders flock to the older iShares product because it has almost six times the average daily trading volume,” making it a cheaper option for investors who don’t like to stay put.

Inflation insurance
The “listless” economy has kept inflation in check for the past couple years, said Elizabeth Ody in Kiplinger’s Personal Finance, but don’t expect prices to stay put forever. To guard your portfolio against inflation, allocate about 10 percent of your fixed-income holdings to Treasury inflation-protected securities, or TIPS. As consumer prices go up, so too do the bonds’ coupon payments, offering a guaranteed after-inflation return. Just how good a return they’ll provide will depend on whether actual inflation is higher than investors’ current expectations. If “consumer prices rise at their long-term historical rate of 3.23 percent over the next five years, then TIPS are a screaming buy.”

Put your refund to work
Don’t let that “giddy feeling” of getting a tax refund lead you to blow it all on “stuff you don’t really need,” said Tyler Cowen in Money. Instead, trick yourself into putting that money to good use. Start by “immediately putting the lion’s share into your savings account.” If you’re married, divvy what’s left between you and your spouse. (Research shows that dividing up money leads to thriftier choices.) Then “spend just enough so you don’t feel deprived.” If you typically owe money on your taxes and lack the discipline to leave the money in your savings, consider prepaying your 2010 taxes. “Yes, it’s an interest-free loan to Uncle Sam, but you’re making almost nil on your savings account these days anyway.”

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