Carlos Sera of Financial Tales defines dollar cost averaging as when one commits to invest a certain dollar amount or percentage of salary to an investment program, usually in a mutual fund or exchange traded fund (ETF), over a consistent period of time.  A good example is a traditional 401(k) plan to which an employee allocates 5% of a monthly paycheck. Sera has several tables illustrating how DCA works. (More on retirement).

Sera likes the dollar cost averaging method because it can encourage someone to invest in the stock market, which in turn gets them on their way to higher lifetime rates of return and a higher standard of living. Another benefit is that when stocks are cheap, you’ll wind up buying more of them; when they’re expensive, you’ll buy less.

As far as whether or not it works,  it enables and encourages many individuals to start saving and building retirement plans. It also positions them to take advantage of bargains in the market. Over time, Sera says, if an investor sticks with it, DCA could produce satisfactory results.

Our own strategy is one of trend following by using the 200-day moving average to determine when you’re in the markets and when you’re out. (How to use the trend following strategy).

Whichever strategy you employ when investing, pick one and stick with it. Bouncing around from one method to the next could wind up being costly to you, and can lead to frustration as you look for a strategy that “works” before giving any of them a chance to do so. Success doesn’t happen overnight!

For more stories on trend following, visit our trend following category.

Kevin Grewal contributed to this article.

International dividend ETFs can provide decent yields and remove the need to do research on foreign stocks. Instead of trying to pick foreign holdings on limited information, there are funds that have pulled together some high-quality, dividend-paying companies that you can hold in a basket, thus spreading out the risk. (See why dividends have outperformed growth this year.)

Todd Shcriber for Investopedia reports that ETFs that hold high-quality stocks with reliable dividend histories that focused on sectors that are typically viewed as safe dividend bets. (Why dividend ETFs are good for tough times).

For more stories about dividends, visit our dividend category.

Among the many available are:

• WisdomTree International Utilities (NYSEArca: DBU): yield 9.89%; Utility funds can be a good bet no matter where you are, because there is always a need for the services utilities provide. These companies tend to pay out steady dividends that are predictable.



• WisdomTree International Large Cap Dividend (NYSEArca: DOL): yield 8.04%; This ETF does not focus on one sector, rather it tends toward large, high-quality dividend stocks. It is a thinly traded fund, but has nice performance. Countries ranging from China to Brazil are featured in this ETF, both hot spots.



• iShares S&P Global Telecommunications (NYSEArca: IXP): yield 5%; Telecom stocks are another sure play as they are indispensible and growing. This is not as international a play as the other two funds, as AT&T and Verizon are in the top 10 holdings. Nevertheless, the ETF contains quality names across the world.

On the one hand, sterling corporate bond prices have been rising. This has been pushing yields down, causing some to second guess whether corporate bonds are the place to be. (More on the corporate bond ETF wave). If this turns out to be the case, then a massive selloff could result, states Matthew Vincent of The Financial Times.

However, analysis of corporate bond spreads tells a different story. Spreads, better known as the difference between the yields on corporate bonds and on safer government bonds,  widened to record levels after Lehman Brothers collapsed last year.

Corporate bond prices fell rapidly in anticipation of widespread defaults by other issuers. This pushed the effective yields from bonds’ fixed-income payouts up toward double figures, suggesting that they are not overbought.  To add icing to the cake, it appears that supply for these bonds, in particular the more risky junk bonds, cannot keep up with demand. (What you should know about junk bond ETFs).

An easy way to access the junk bond market is through the following ETFs:

For more stories on bond ETFs, visit our bond ETF category.

• iBoxx $ Liquid High-Yield (NYSEArca: HYG): up 22.2% year-to-date and has a yield of 9.9%

• PowerShares High Yield Corporate Bond (NYSEArca: PHB): up 18.1% year-to date and has a yield of 9.3%.

• SPDR Barclays Capital High Yield Bond (NYSEArca: JNK): up 31% year-to-date and has a yield of 12.4%

Kevin Grewal contributed to this article.

iShares

iShares’ proposed line of new funds will hold muni bonds, and the funds themselves would target certain maturity dates.

Each fund would hold the underlying securities from its respective index to full maturity, at which point the fund would simply retain a cash position, according to Index Universe staff. After the last holding of the fund hits maturity, which is on or around Aug. 31 of the year in the fund’s name, the assets would be distributed to shareholders.

The funds would track indexes in the recently launched S&P AMT-Free Municipal Bond Index Series, which track investment-grade muni bonds that mature between June 1 and Aug. 31 of a specific year. (Bond ETF hot spots).

These are the first ETFs that would have maturities fall within a specific date range. They act almost like muni bonds, in that they make tax-exempt distributions and return an entire investment on a specific date. (What you need to know about bond ETFs).

For more stories about bond ETFs, visit our bond ETF category.

Investors looking for dividend-paying stocks will encounter the argument that “growth” stocks may be better than those paying dividends, remarks John Jagerson for Learning Markets. (Read about how dividends can help).

Dividend-paying stocks, however, have usually outperformed major growth indexes as a result of lower volatility returns. For example, the Dow Jones Select Dividend Index has outperformed the S&P 500 and the Russell 2000 by almost 100% in the last 10 years.

Jagerson commented that an investor does not need to decide on a dividend-paying portfolio over a growth-oriented portfolio. A reasonable alternative may be a combination of the two.

You could take the time to scrounge up individual stocks that pay dividends, but you may also consider ETFs as an easy way to gain exposure to dividend-paying stocks. (Read about strategies to rebuild your portfolio).

For more information on dividends, visit our dividend category.

• SPDR S&P Dividend ETF (NYSEArca: SDY): up 16.4% year-to-date; yields 4.27%

• WisdomTree LargeCap Dividend (NYSEArca: DLN): up 15.8% year-to-date; yields 2.94%

• iShares Dow Jones Select Dividend Index (NYSEArca: DVY): up 7.1% year-to-date; yields 4.32%

Max Chen contributed to this article.

The average 401(k) balance that has been held since 2003 fell 24.3% in 2008, according to the Employment Benefit Research Institute. This includes losses, gains, and employer/employee contributions, Adam Kommel for Mutual Fund Wire reports.

By year’s end, the average balance in retirement accounts was $86,513 for 401(k) type accounts.

The S&P 500 lost 37% in 2008. Overall, equities make up 56% of all assets in retirement accounts, and fixed-income makes up the other 41% of assets.

Target-date funds are showing great growth and popularity, with 31% of those invested choosing those funds. The number of twenty-somethings who were invested in a 401(k)s that chose target-date funds went from 19% in 2007 to 23% in 2008.

Does this leave the door wide open for ETFs? Read about which retirement plans incorporate ETFs here.

For more stories about retirement, visit our retirement category.

According to Sara Hansard for Investment News, account balances for young 401(k) participants rose by huge amount from January 2008 through the middle of this year while the balances for those that have been working for most of their lives declined.

Here are the results of a report by the Employee Benefit Research Institute:

• For 401(k) holders ages 26 to 35 who had accounts for four years or less, balances rose 79.9% since 2007
• For 401(k) holders who have held their accounts for 20 to 29 years, an age range of 55 to 64, balances declined by 8% over the same time period

These results seem to be skewed in that those who have had 401(k) accounts for some time have much larger amounts in their accounts and the impact of new contributions on these accounts are much less than that on newer accounts.

This study further supports the argument that ETFs should be implemented in 401(k)s.  The inherent characteristics of these index funds – transparency, intraday trading, tax efficiency and the ability to access hard-to-reach sectors and classes – will enable 401(k) investors to get even more diversified than they currently are and have more control of their retirement portfolios.

View our special report on 401(k) plans for a list of those who offer ETFs within 401(k) plans.

For more stories on retirement, visit our retirement category.

Kevin Grewal contributed to this article.

During the worst financial crisis in the past 70 years, you may have watched your nest egg dwindle to half of what it was – or even more.  Now that financial stability is slowly starting to emerge and millions are trying to pick up the pieces, it’s important to keep in mind that the best financial advice is completely worthless if it is not followed, states Greg Salsbury of Investment News.

Were you one of the ones who lost their cool when the markets were at their worst? If so, read on for some tips about how to do better the next time the markets go topsy-turvy:

• You now know this: do not allow emotions to drive investment decisions.  Often, people think that their gut feelings will enable them to cash in on the next Google (NASDAQ: GOOG). Fear makes them sell too quickly. Exuberance makes them buy without fully examining the pros and cons.

• It is important to stay diversified.  This allows investors to reap the rewards of gaining exposure to high performing sectors and industries while not banking on the performance of one or two stocks.  A good portfolio has exposure to bonds, domestic equities and foreign equities. ETFs enable investors to gain broad exposure to a growing number of asset classes and sectors.

• The third artery to building a good retirement portfolio is education.  It is vital to know what your portfolio holds, economic conditions, both macro and micro, which could potentially hinder your holdings, and know what your choices are.  After all, you control the destiny of your portfolio.

• Have an exit strategy. Don’t hang on, hoping against hope that a position will come back. Instead, a stop loss will help stop the bleeding when a trend winds to a stop. Investors who had a stop loss that had them out between October and March were able to sit out a good chunk of the market’s downturn.

• Have an entry strategy, too.  There are many out there, including a trend following strategy, which uses the 200-day moving average as a guide.  It is easy to use and enables investors to tuck their emotions away.  The key to employing a strategy is to use it. Don’t rationalize your way out of it when the signals say you should act.

For a better understanding of the trend following strategy, take a look at our new book on trend following. There’s $4 trillion on the sidelines, but the average investor doesn’t believe we’re in a recovery at this point. Investors don’t typically buy until there’s a full recovery, but if you waited until that point, you would miss a sizable portion of potential gains.

For more stories on trend following, visit our trend following category.

Kevin Grewal contributed to this article.

The financial climate of today has many people looking for different answers to their retirement questions. A deeper and more detailed outlook is being taken by both young and old investors. Here are a few pointers to consider about your retirement position, from Huliq news:

• Look at your strategy, whether it’s with a professional or on your own: The sooner you do this, the better off you will be. Having a strategy can help guide you and help you make the adjustments needed at each phase of your life to make sure you are on the right track to obtain your goal. Ideas such as lifestyle and budget must be addressed.
• Sources of income/savings: Identify the sources of income and savings that will be accessible once you are retired. Social Security is a big question lately – will it even exist? Do not rely on programs such as these. Pensions are another thing to consider. Many employers no longer offer them.
• The 401(k) option: Many employers have moved to this platform instead, as it is more efficient than a pension – for them. Investigate your employer’s plan and keep contributions on the higher end, especially if they are matching you. Consider ETFs in a 401(k) plan also. They are not readily available in these plans yet, but are on the brink of breaking into this arena.
• Eliminate debt and keep working: Both of these are important ideas to consider before you retire. The more you can save, the less you will have to rely on from other sources for income. Each year you delay starting to receive your Social Security checks, you will receive 8% more when you do start receiving them.

For more stories about retirement, visit our retirement category.

Individuals are living longer, health care costs are increasing and social security benefits are dwindling, forcing many  retirees to require more growth in their portfolios during the coming years and decades.  In order to achieve this, Katy Marquardt of US News & World Report suggests the following rules to followL

• Separate retirement money into different categories.  Three categories to consider are short-term funds, which reside in very low-risk investments, such as high-quality bonds; intermediate-term money goes in a balanced mix of stocks and bonds, such as a 50-50 or 60-40 split; and long-term investments starting with five-year time horizons are heavier on stocks.

• Don’t look too far for yield, because decent yields can be tough to locate. Treasuries are the safest, but they yield little. If you want a bigger yield, you’ll have to take on some risk

• Consider municipal bonds.  They have excellent tax benefits (they’re exempt from federal taxes and in some cases are exempt from state and local taxes). Choose high-grade, general-obligation bonds.

• Go for dividends.  The main reason behind this is because dividend income, which is generated from company profits paid out to shareholders, helps offset fluctuations in a stock’s share price, creating a cushion during turbulent markets.

• Consider alternative asset classes. This includes classes such commodities, annuities and real estate, just to name a few.

The most important rule of all is to have a strategy, and better yet, use it. We follow the trend lines to determine what positions we’re taking, and a stop loss determines our sell point. Read more about the strategy in our new book, The ETF Trend Following Playbook.

For more stories on trend following, visit our trend following category.

Kevin Grewal contributed to this article.