Top 3 Best ETFs & Secrets Exposed.

video we're going to talk about ETF

secrets to ETFs you've probably never

heard about before and one dangerous S P

500 tracking ATF that could actually be

costing you a lot more money even though

you might be thinking you're saving

money folks I'm meet Kevin and in this

video I am going to teach you everything

I know about ETS specifically the three

things that we just outlined I'm really

excited to bring this to you because not

only am I a licensed financial advisor

but I also run an actively managed ETF

keep in mind this video is not to talk

about my own products I'm not going to

mention any of my own services in this

video and this video is not personalized

Financial advice for you I just want you

to know that through the creation and

through the processes of getting

licensed and everything that I've done I

have a little bit of insight into ETFs

that might help you learn something

about ETFs so first and foremost

something that we really have to get out

of the way is sometimes when people hear

80 EF they don't actually understand

what that is and that's totally okay an

ETF is basically just a fund that trades

on the stock market that's it after all

it's called an exchange traded fund now

something that's worth noting about that

is generally ETFs with often very very

minor variations discounts or premiums

very very rare that you have a large

discount or premium on an ETF usually

they trade at what's known as net asset

value or Nav Now why is that important

well it's important because basically if

an ETF invests in let's say 100

different stocks

and they started investing today let's

just say today is uh December 6th they

started investing on December 6th into

those hundred stocks it doesn't really

matter if that ETF which might be

trading at twenty dollars it doesn't

really matter if they have one million

dollars of assets under management or

all of a sudden some really rich hedge

fund dude comes along and says you know

what I'm putting a billion dollars into

your ETF that ETF is still trading at

probably roughly twenty dollars the

reason for that is it doesn't matter how

much money flows into an ETF the ETF

trades at what the underlying value of

the stocks is relative to when they

listed so for example if tomorrow those

100 stocks on 12-7 all 100 of those

stocks average out to be worth 10

percent more than the value of the ETF

should be trading at roughly 22 or 10

more it doesn't matter if there's a

dollar a million dollars or a billion

dollars in that ETF roughly speaking

this is how an ETF should trade not

based on how much money is flowing in

but rather based on the movement of the

underlying stocks this is very different

from like a little small cap or micro

cap stock that could get pump and dumped

let's say you've got you know the uh the

x-com company okay and they're trading

under ticker symbol X I'm just making

this up and they have like a 50 million

dollar market cap and they're like an

over-the-counter stock and somebody

wants to pump up this stock right I'll

give you an example of how somebody can

pump this up with thinly traded stocks

you have some well any stock has an

order book there's a buy and then

there's a sell order book and let's say

that stock is right now trading uh with

a 50 million dollar market cap and it's

trading for 20 bucks that's the current

trading level right and you have have

nobody who wants to sell the stock at

twenty dollars but you do have somebody

over here that's willing to sell 500

shares at twenty one dollars someone

here that's willing to sell 1500 shares

at twenty five dollars and then some bad

actor wants to pump this stock right so

maybe they put in a market order on this

thinly traded stock for 1500 shares at

Market the danger of a market order on

thinly traded stocks is you could run up

the order book now all of a sudden you

have a 1500 buy order well you're gonna

execute 500 at 21 and then you'll take a

thousand of these over here at 25. the

market now sees the last traded stocks

were at twenty five dollars all of a

sudden the stock price is no longer

twenty dollars it shoots up to the last

traded price of 25 and all of a sudden

it makes it look like this stock just

pumped up 25 because it's a thinly

traded small cap

ETFs don't work that way it doesn't

matter how thinly traded it is you don't

sort of pump and dump an ETF because you

can't because it's based on the movement

of the underlying value of the stocks

that's really important to know about

ETFs versus stocks now there are two

types of ETFs there's actively managed

and passively managed generally the most

common types of ETFs that we see are

passively managed ETFs so two really big

passive uh ETFs are ETFs that like to

track the S P 500 which basically just

takes the largest 500 companies based on

market cap in the US economy and throws

them together in a basket Apple has the

largest market cap so guess what Apple

has the largest waiting and is the

number one position in the S P 500 very

simple passive

ETFs uh follow indices and indices are

rules based they're known as passive

because nobody's actually changing the

allocation nobody's going into the S P

500 saying you know what today we don't

like apple anymore so we're going to

reduce the allocation it's just rules

based what are the largest companies all

right those are the 500 that we're

sticking into the S P 500 uh what is the

NASDAQ do well it takes the largest tech

companies essentially and when we look

at the NASDAQ 100 we take the largest

100

non-financial technology companies and

there are ETFs that track these because

you can't invest directly into an index

because an index is just a basket of

stocks it's just sort of a spreadsheet

that we put together and go hey what's

the value of all these stocks added up

you know divided by some kind of rule

and there we go that's what the value of

the S P 500 is or the NASDAQ whatever

but there are ETFs that track the for

example vo tracks the S P 500 passively

they charge what's known as three basis

points which means that for every one

thousand dollars you invest with them it

only costs you 30 cents

per year

approximately to invest into the vo fund

this is because it's passive the fees

are usually a lot lower if you want to

invest in NASDAQ 100 most people invest

in QQQ here they charge you 20 basis

points which means it costs you about

two dollars per year to invest a

thousand dollars one of the ETFs though

that you can invest in that removes some

of the expense of QQQ but does basically

the same thing and it's one of the two

ETFs I want to reveal here is actually

QQQ m

yeah get ready to be mind blown the fee

for QQQ

is 20 basis points

the fee for qqqm is 15 basis points so

if you're a NASDAQ 100 investor you

should hold zero QQQ and you should only

hold QQQ m in theory and the reason I

say that is because I can't give you

personalized Financial advice but if you

look at the difference between these two

you'll see that they're basically is no

difference so you might ask yourself

well Kevin come on man come on why the

hell then do they have two different

funds that's so stupid no it's actually

quite brilliant the reason they have two

different funds that do basically the

same thing is because with qqqm they

could appeal to people who are more fee

sensitive to for QQQ they could charge a

higher fee for people who are just

interested in what's most popular so in

other words why would you give up the

extra five basis points if you don't

have to if you if somebody wants to save

some money they can go to qqqm and and

they can still get the same exact

exposure in fact take a look at this if

you go to finance.google.com and you

compare QQQ to qqqm you see that they're

tracking basically exactly the the same

line but folks you have to be very

careful being fee sensitive see there is

a particular way that you can invest in

the S P 500 and pay absolutely zero fees

but I want you to be careful here so

when you look at the S P 500 you might

think oh well all S P 500 funds are

created equally right and then when you

go to a company like Sofi you'll realize

that sofa is actually pitching you the

Sofi select 500 ETF and this is supposed

to track the s p 500. they have a net

expense ratio to you of zero it's

basically a lost leader for Sofi to try

to get marketing out and to get business

right and if we jump on over to Google

Finance you'll actually see that when

you compare the Vanguard voo S P 500 ETF

to the actual S P 500 you can see that

they track pretty closely uh it actually

looks like the S P 500 is doing slightly

worse than vo but they track almost

exactly that's because tracking ETFs

aren't perfect

but if you're thinking oh I'm gonna save

money by investing in sfy because sfy

has so little tracking ability compared

to the power of Voos tracking ability

look at the sfy the sfy actually

underperforms by almost four percent

even though it's supposed to track the S

P 500 it's underperforming to the

downside by four percent and if you go

to the last let's say one month where

everything should be green it's also

underperforming so in both directions

it's underperforming so there is a risk

when you look at ETFs that to some

degree you can get what you pay for so

in this case if you're trying to save

some fees in my opinion it it makes

sense to consider qqqm versus QQQ

because they basically track the same

but it doesn't make sense to use sfy

versus Vo to save the three basis points

because you're getting tracking

performance that's actually not as good

it's actually to your detriment in both

directions up and down that is worse

when it's down and worse when it's up

that's not great so this is a little bit

of a lesson into passive ETFs now I'm

going to reveal one more passive ETF but

I want to talk about one of the big

benefits of ETFs that's often overlooked

and it'd usually have to do with has to

do with active fund managers see when

you invest in an ETF and you say I'm

going to invest in this one ETF forever

let's say you're going to invest in

Kathy Wood forever the difference with

an active ETF is that their fees are

usually higher in the case of Kathy Wood

funds at the time of this recording

they're usually around 75 basis points

which is a whole lot more than three

basis points but

the idea here is that it's way less than

usually investing in an active manager

through a hedge fund which might take a

two percent annual fee and then a 20

performance fee on top of that after

some kind of minimum return right it's

certainly a lot less than a 2 and 20

model and it's certainly a lot less than

investing into a mutual fund that might

just take 1.5 percent or even one

percent right so an ETF is actually a

very inexpensive way of getting exposure

to an active fund manager and the

benefit of an active fund manager in

theory because it's not always

necessarily a benefit but the benefit in

theory of an active fund manager is that

an active fund manager can say hey we

think conditions at let's say coinbase

which used to be a five percent holding

in our fund have deteriorated and we

want to actually reduce that and so

we're going to change this to now a two

percent position in coin and let's say a

three percent position in matterport and

if you find an active ETF fund manager

who can make those decisions for you

then there could be really good

advantages first of all they could

reduce your exposure to companies that

maybe you're going bankrupt or companies

that are at risk of Performing poorly an

index-based ETF if it doesn't have rules

around matrices of performance then

maybe that index ETF isn't going to

protect you from some of these

fluctuations so for example if some of

the biggest Holdings in the NASDAQ 100

are companies that you think are going

to perform poorly then you wouldn't want

exposure to those and you wouldn't want

to invest in QQQ right so if we type

into Google NASDAQ 100 Holdings remember

these are the largest tech companies

that are non-financial the largest

companies that you have there are going

to be companies like apple Microsoft

Amazon Apple Tesla but then you go down

a little bit further and you'll see oh

we've got PayPal in there at 31. well

maybe you absolutely hate PayPal and you

really don't want exposure to that or

you don't want exposure to Blizzard

which is also in their Activision

Blizzard right well maybe you can align

with an active fund manager that can

choose companies that you're not worried

about because your fund manager is

repositioning Euphoria is repositioning

the fund for you right and that's why

they charge a higher fee

some active fund managers also incr

include macro Hedges which could be a

way to sort of hedge some of your risk

at a lower expense than usually what an

active hedge fund manager would charge

because again ETFs are more competitive

and their fees tend to be lower

so the neat thing about active fund

managers is the following and this is

generally true of like index funds as

well or index chasing ETFs as well but

there's a really cool tax benefit and

the tax benefit is the following if you

say you know what I'm going to hold Arc

K forever well if one stock runs let's

say roku's in here and Roku 5xs well

you're I mean those are huge gains that

are under the umbrella of RK well an

active fund manager can say we're going

to go ahead and trade these massive

gains in Roku and we're going to go

ahead and just get rid of all of our

Roku stock and instead we're gonna buy

Tesla just as an example by them making

this basket exchange as long as they

manage it appropriately by them making

this basket exchange they can actually

make an exchange without passing on

potentially talk to your CPA about this

capital gains to you because they're

actually exchanging

ETF units for other ETF units in this

case Tesla from Roku units to Tesla and

by doing this exchange they're not

actually buying or selling the shares

they're just exchanging them and because

you hold the underlying ticker which is

uh RK and you don't actually hold the

underlying shares you're not exposed

potentially to those tax obligations so

if you find an active fund manager that

you really believe in you could

potentially avoid capital gains while

having your portfolio automatically

rebalanced for you now that's really

cool and again it's true of passive

funds as well but active ones generally

have more exposure to individual stocks

that you could trade into and out of

which again the fund manager does that

for you so those tax benefits are great

and if you hold an ETF forever and let's

say you're 90 years old right and this

is a way to never pay taxes let's say

you hold an ETF until you're 90 years

old and you know what you're like I'm 90

years old I've held RK for the last 70

years I trust so much at RK and let's

say you have 10 million dollars of

capital gains well let's say uh your you

know today's December 6th let's say and

you sold all of those 10 million dollars

of gains we'd probably have to pay

somewhere around 25 percent in taxes you

know you might owe two and a half

million dollars to the government in

taxes for long-term capital gains and

whatever gains taxes your state charges

I'm just making an example

well then let's say on 12 7

unfortunately you get hit by a bus

and instead of you having sold on 12 6

you actually kept uh that 10 million

dollars of arcade gains that you had and

you got hit by a bus unfortunately at 90

years old on 12-7 but then on 12 8 your

son sells all your shares

well your son could potentially get

what's known as a stepped up tax basis

and this is where the IRS comes in and

says hey sorry for your loss we're just

gonna say you earned those 10 million

shares at a 10 million dollar cost basis

and we're not going to charge you any of

those taxes that's called a stepped up

tax basis really really cool

so the neat thing about that with an

actively managed fund is you could live

your entire life have somebody else

rebalance your portfolio for you outside

of a retirement account and never pay

taxes potentially on that rebalancing as

long as they're managing the fund in the

best possible way that's a really cool

unique advantage of actively managed

ETFs but I did promise a second ETF and

the second ETF that I want to talk about

is actually another passively managed

ETFs or another passively managed ETF

and it tracks the largest 100 companies

based on how much free cash flow they

have and I want to leave you with this

ticker it's called ticker symbol cows

ticker symbol cows is actually positive

year to date here in 2022 it is a a

passively managed fund so its fees are

lower I think they're somewhere around

20 basis points or something like that

which is still again lower than what

you're going going to see at an actively

managed ETF but it's a rules-based ETF

so some it has a lot of Health Care

Holdings a lot of oil Holdings so you

have to be careful and see like okay

well is there a risk for those going

forward but the cows ETF is really

really cool it's a Pacer ETF and it

tracks the U.S Cash Cow 100

ETF again it is the it screens the

Russell 1000 for the top 100 companies

based on free cash flow which is pretty

cool so it gives you a little bit

exposure to a a rules-based ETF that not

a lot of people talk about and Bank of

America just did a piece on them talking

about why they're bullish on cows for

2023 I personally think focusing on

companies with free cash flow is a

really good idea I'm not the biggest fan

of being extremely oil weight though I

do think having some oil exposure is a

good idea as just a hedge uh but uh yeah

look the Russell 1000 tracks the you

know largest 1000 large cap stocks and

uh screening uh from those companies

with the highest cash flow the 100 with

the highest cash flow

not a bad play and it's something to

consider that again is a passively

managed fund so fees are lower uh but

you know always when it comes to ETFs

make sure you read what the fees are

what the rules are for the ETF you could

read a prospectus on ETFs but I wanted

to provide some education on ETFs

hopefully this is really insightful for

you again this is if this video is not a

solicitation for any of my own products

my courses on building your wealth my

ETF none of that that you know look I

make lots of videos on this channel if

you want specific videos whether it's on

real estate or actual recommendations

that I make for for products or services

or whatever make sure to check out other

videos but this video is really just a

general education video and I I don't

want to ever come across that this video

is some kind of pitch video to you it's

just hey free suggestions for you to

look into and if you found it helpful

consider subscribing and sharing the

video that's all I ask for in return in

this video thanks so much for watching

we'll see you in the next goodbye