Introduction 1 Since the First Edition 1 Out of the shadows 2 Filling* the investment voids 2 Creations of dubious value 2 Morphing into new creatures 3 About This Book 3 Foolish Assumptions 5 Icons Used in This Book 5 Beyond the Book 6 Where to Go from Here 6 Part 1: The ABCs of ETFs 7 Chapter 1: No Longer the New Kid on the Block 9 In the Beginning 10 Enter the traders 10 Moving south of the border 10 Fulfilling a Dream 11 Goodbye, ridiculously high mutual fund fees 11 Hello, building blocks for a better portfolio 12 Will you miss the court papers? 12 Not Quite as Popular as the Beatles, But Getting There 12 Moving from Wall Street to Main Street 14 Keeping up with the Vanguards 15 Ready for Prime Time 16 The proof of the pudding 17 The major players 18 Twist and shout: Commercialization is tainting a good thing 19 Chapter 2: What the Heck Is an ETF, Anyway? 23 The Nature of the Beast 24 Choosing between the Classic and the New Indexes 25 Preferring ETFs over Individual Stocks 26 Distinguishing ETFs from Mutual Funds 27 Why the Big Boys Prefer ETFs 28 Trading in large lots 28 Savoring the versatility 28 Why Individual Investors Are Learning to Love ETFs 30 The cost advantage: How low can you go? 30 Uncle Sam''s loss, your gain 33 What you see is what you get 36 Getting the Professional Edge 37 Consider a few impressive numbers 38 You can do what they do! 38 Passive versus Active Investing: Your Choice 39 The index advantage 39 The allure of active management 40 Why the race is getting harder to measure and what to do about it 41 Do ETFs Belong in Your Life? 42 Calculating commissions 42 Moving money in a flash 42 Understanding tracking error 43 Making a sometimes tricky choice 43 Chapter 3: Getting to Know the Players 47 Creating an Account for Your ETFs 48 Answering a zillion questions 48 Placing an order to buy 50 But wait just a moment! 51 Trading ETFs like a pro 51 Introducing the Shops 52 What to look for 52 Price is no longer key 53 The Vanguard Group 54 Fidelity Investments 55 Charles Schwab 55 E*Trade 56 Other brokerage houses 56 Presenting the Suppliers 57 It''s okay to mix and match -- with caution 57 Check your passport 58 BlackRock Financial Management iShares 58 Vanguard ETFs 59 State Street Global Adviser''s SPDRs 60 Invesco 61 Charles Schwab 63 First Trust 63 Other suppliers 64 Familiarizing Yourself with the Indexers 64 S&P Dow Jones Indices 64 MSCI 65 FTSE/Russell 65 CRSP 65 Bloomberg 66 Meeting the Middlemen 66 NYSE Arca 67 NASDAQ 67 BATS 67 Meeting the* Wannabe Middlemen 67 Commissioned brokers 67 Separately managed accounts 68 Annuities and life insurance products 68 Funds of funds 68 Part 2: Building the Stock (Equity) Side of Your Portfolio 69 Chapter 4: Risk Control, Diversification, and Some Other Things You Need to Know 71 Risk Is Not Just a Board Game 72 The trade-off of all trade-offs (safety versus return) 72 So just how risky are ETFs? 73 Smart Risk, Foolish Risk 74 How Risk Is Measured 76 Standard deviation: The king of all risk measurement tools 76 Beta: Assessing price swings in relation to the market 78 The Sharpe, Treynor, and Sortino ratios: Measures of what you get for your risk 78 Meet Modern Portfolio Theory 81 Tasting the extreme positivity of negative correlation 81 Settling for limited correlation 82 Reaching for the elusive Efficient Frontier 84 Accusations that MPT is dead are greatly exaggerated 84 Mixing and Matching Your Stock ETFs 86 Filling in your style box 86 Buying by industry sector 87 Don''t slice and dice your portfolio to death 88 Chapter 5: Large Growth: Muscular Money Makers 91 Style Review 93 What makes large cap large? 93 How does growth differ from value? 93 Putting these terms to use 94 Big and Brawny 95 Contrary to all appearances 95 Let history serve as only a rough guide 96 ETF Options Galore 97 Winnowing the field 97 Strictly large growth, best options 98 ETFs I wouldn''t go out of my way to own 100 Chapter 6: Large Value: Counterintuitive Cash Cows 103 Six Ways to Recognize Value 105 Looking for the Best Value Buys 106 Taking the index route 106 Making an ETF selection 107 Chapter 7: Small Growth: Sweet Sounding Start-ups 113 Getting Real about Small-Cap Investments 115 Your Choices for Small Growth 116 Strictly small-cap growth funds 116 Smaller than Small: Meet the Micro Caps 118 Chapter 8: Small Value: Diminutive Dazzlers 123 It''s Been Quite a Ride 125 Latching on for fun and profit 125 But keeping your balance 125 What About the Mid Caps? 128 Chapter 9: Going Global: ETFs without Borders 129 The Ups and Downs of Different Markets around the World 130 Low correlation is the name of the game 131 Reme*mber what happened to Japan 133 Finding Your Best Mix of Domestic and International 133 Why putting three-quarters of your portfolio in foreign stocks is too much 133 Why putting one-quarter of your portfolio in foreign stocks is insufficient 135 Why ETFs are a great tool for international investing 136 Not All Foreign Nations -- or Stocks -- Are Created Equal 137 Choosing the Best International ETFs for Your Portfolio 139 A number of brands to choose from 140 All the world''s your apple: ETFs that cover the planet 140 Developed-market ETFs: From the North Sea to the Land of the Rising Sun 141 Emerging-market stock ETFs -- Well, we hope that they''re emerging 144 Adding value to your international portfolio 147 Small-cap international: Yes, you want it 148 Chapter 10: Sector Investing: ETFs According to Industry 151 Selecting Stocks by Sector, not Style 152 Speculating on the Next Hot Industry 154 Sizzling and sinking 154 Momentum riders and bottom feeders 154 Doing Sector Investing Right 155 Calculating your optimal sector mix 155 Seeking risk adjustment with high- and low-volatility sectors 156 Knowing where the style grid comes through 157 Combining strategies to optimize your portfolio 157 Seeking low correlations for added diversification 158 Sector Choices by the Dozen 159 Vanguard ETFs 159 Select Sector SPDRs: State Street Global Advisors (Part 1) 160 SPDRs: State Street Global Advisors (Part 2) 161 BlackRock''s iShares 163 Invesco 164 Fidelity* 166 Chapter 11: Real Estate Investment Trusts: Becoming a Virtual Landlord 169 Considering Five Distinguishing Characteristics of REITs 170 Limited correlation to the broad markets 171 Unusually high dividends 171 Different taxation of dividends 172 Special status among financial pros 172 Connection to tangible property 172 Calculating a Proper REIT Allocation 173 Judging from the past 173 Splitting the baby: Domestic and international REIT funds 174 Picking REIT ETFs for Your Portfolio 175 U.S domestic REIT ETFs 175 International and Global REIT funds 177 Chapter 12: Dividend Funds: The Search for Steady Money 179 Your High-Dividend ETF Options 180 Promise of Riches or Smoke and Mirrors? 181 Part 3: Adding Bonds (Fixed Income) to Your Portfolio 185 Chapter 13: For Your Interest: The World of Bond ETFs 187 Bond Investing in the Modern Era 188 Tracing the Track Record of Bonds 188 Portfolio protection when you need it most 189 History may or may not repeat 191 Tapping into Bonds in Various Ways 193 Finding strength in numbers 194 Considering bond investment costs 195 Determining the Optimal Fixed-Income Allocation 195 60/40? 50/50? Finding a split that makes sense 196 Meet Joe, age 67, with $840,000 in the bank 198* Meet Betsy and Mike, age 36, with $30,000 in the bank 199 Chapter 14: Your Basic Bonds: Treasuries, Agency Bonds, and Corporates 201 Tapping the Treasuries: Uncle Sam''s IOUs 203 Schwab Short-Term U.S Treasury ETF (SCHO) 204 Vanguard Short-Term Treasury ETF (VGSH) 204 Vanguard Intermediate-Term Treasury Index ETF (VGIT)/Schwab Intermediate-Term U.S Treasury (SCHR) 205 Schwab Long-Term U.S Treasury ETF SCHQ)/Vanguard Long-Term Treasury ETF (VGLT) 206 Bread at $15 a Loaf? Getting Inflation Protection in a Flash 207 Schwab U.S TIPS ETF (SCHP) 207 Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP) 208 Treasuries'' Cousins: U.S Agency Bonds (Mortgage-Backed Securities) 209 Banking on Business: Corporate-Bond ETFs 210 Vanguard Intermediate-Term Corporate Bond E*TF (VCIT) 212 Vanguard ESG U.S Corporate Bond ETF (VCEB) 212 Vanguard Short-Term Corporate Bon.