Richard Evans

Feel the Rush of Trading ETFs

On May 14, when the markets shot up for the second day in a row, did you feel an urge to get in on the action?

Yes, I know we all have our standard asset allocation related to our age and so forth. And we're supposed to just let it be. But that's like watching grass grow. In November.

Having brought my head up to date - so I could deal with exchange-traded funds - I was able to pick up the phone mid-morning and buy Cubes (QQQ). It wasn't just that I made a few thousand dollars; it was also that delicious feeling that I had seen opportunity and jumped on it.

This was a considerable change from just a year ago when I held only standard index funds and a few actively managed funds for spice. In those dreary days, when I saw the markets making a move, all I could do was call a mutual fund company and ask them to make a trade at the end of the day. When it was all over.

Caution: I'm not suggesting that anybody abandon his or her basic asset allocation and start day-trading portfolios. But given a knowledge of the markets, and the willingness to keep up with financial news, there is nothing wrong with using ETFs to trade some of your assets - say 10 to 20%, depending on your situation.

Not to lead you down a rose-petal path, the kind of trading I'm describing here does call for a fair amount of homework. One reason I was able to move on Cubes that day was because my studies had convinced me that tech was somewhere near a bottom, so I didn't think there was much downside risk.

My most useful research tool is the exchange-traded portfolios listing on the AMEX page in The Wall Street Journal. I save every listing and keep a close watch on who's doing what. Typically, I don't have time to sit in front of a tube all day, so I rarely trade intra-day. But by studying this list and other material, I've been able to do something that might be called week-trading or month-trading. This is how, for example, I came to own - and still own - iShares MSCI South Korea (EWY) and iShares MSCI Austria (EWO), both up over 20% YTD. It remains a source of sleep-at-night comfort that I can get out of these funds at any time during any trading day.

Bottom line: The traditional wall between trading and investing is artificial and needlessly rigid. With common sense and a reasonable investment of time, you could use ETFs to nudge up your portfolio return and sometimes feel the rush of trading them.