Question to the experience investors concerning XLF
15 minutes ago I am a novoice and am considering adding some financials to my 401k account. My advisor tells me if is better to be in a mutual fund. I have looked at the holdings of FAS and XLF. There seems to be a similarity in their holdings. My advisor tells me the best ROI is an individual stock such as CITI or BAC. etc. Could you give me your insight concerning my concerns? Thanks bianco (I ask this same question on the FAS mb. I look to compare the replies)
Individual bank stocks carry great risks of dilution should government convert the TARP preferred shares into common equity. That could dramatically and permanently reduce the stock price from current levels. Both, C and BAC are considered weak banks. Avoid them.
XLF is like a mutual fund, it offers some protection from individual stock risk but may offer lower overall returns. But if the choice is general market dilution during bear market or total loss of capital from collapse of the individual bank stock, pick XLF as it will also contain relatively stronger banks.
FAS is volatile 3x leveraged ETF that is subject to price decay over time. Not suitable for buy and hold investors.
Over the long term you are better off in an XLF. Sure it may be true that in bull markets your return will be slightly lower than individual bank stocks but in a down market you will have more of a buffer, less of a loss. This equates to long-term success mainly due to compounding and lower management fees.
i agree with staying in cash. Since there are so many short ETF's now with more coming to the market everyday, why would you want to risk being wiped out by shorts, unless they reinstate the uptick rule. Cramer just said tonight that the market is not for the retail investor until the shorts are stopped from wiping out shareholder value, he said he rather by a house.
Even XLF, I wouldn't invest in it long term, no way would I give away my wealth to the shorts, there are so many short financiall ETF's. they wiped out the value of the bank stocks. I day trade UYG and FAS, that's it, get in and out.
I can't answer your question about the difference between these two products, but I would recommend that you hold your savings in cash until the stress test results have been released in May, and consider buying at a bottom then or in June. It is better that you stay in cash if you are investing now. No need to jump in now as sentiments are turning...