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Aug 26

Are there any safe investments today? 6

Exchange Traded Funds

Exchange Traded Funds (ETFs) are traded like equities, but they carry very different risks and rewards to actual shares. They are less risky because they are comprised of a basket of stocks, usually either tracking a popular index like the S & P, 500 or culled from a particular industry sector, like the energy sector.

These funds also pay a dividend. The popular S & P 500 ETF “SPIDER” has a yield, as of August 20, 2009, of 2.71%.

This may be significantly less than what you could have made investing in one stock in the S & P 500. For instance, if you invested in Chesapeake Utilities Corp, you would make 4.2%. At 2.7% it takes 36.9 years to break even; at 4.2% the break-even period is 23.8 years.

But, you have a far greater risk of Chesapeake losing all its share value before 23.8 years has elapsed than you have of every share in the SPIDER losing value in 36.9 years.

In Part 7 of this series, we will look at US Treasury Bonds.

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