Spiders and Exchange Traded Fund; Housing Market
ROB MARCIANO, CNN NEWS ANCHOR: Hello, I'm Rob Marciano in the CNN Center in Atlanta. IN THE MONEY begins in a moment. But first, the headlines. The Lebanese Army renews its assault on militants linked to al Qaeda. The militants are holed up in a Palestinian refugee camp near Tripoli. After a lull in the week's long fighting, the battles flared up again today. And one of four men charge in an alleged plot to attack New York's Kennedy Airport is still on the loose. Another suspect, seen in this sketch, is a U.S citizen and native of Guyana. He's in custody in New York and the others are being held in Trinidad. Authorities say the men planned to blow up fuel tanks, pipelines and buildings at JFK. They describe the suspects as "al Qaeda wannabes." And the race for the White House making a stop in New Hampshire. The eight Democratic candidates face off in a debate tonight here on CNN at 7:00 p.m. Eastern Time. The Republicans take the stage on Tuesday. The Granite State holds the campaign's first primary. You'll want to stay with CNN for our extensive coverage before, during, and after tonight's taping. There you see nit the lineup. More news in 30 minutes, now time for</s>IN THE MONEY ALI VELSHI, CO-HOST: Welcome to IN THE MONEY I'm Ali Velshi.</s>CHRISTINE ROMANS, CO-HOST: And I'm Christine Romans. Coming up on today's program, we'll look at whether you're better off today than your parents were?</s>VELSHI: And later, road testing some tests on fuel efficiency to see which ones actually save you money.</s>ROMANS: Plus, find out if your part of the country could have an electricity squeeze this year. Maybe higher bills. How much you're going to pay for power.</s>VELSHI: A busy business week, even though it was a short business week, this weeks. We saw records on the Dow, on the S&P; 500.</s>ROMANS: That's right.</s>VELSHI: But, it continues to be more mixed news about the economy.</s>ROMANS: That's right, we saw jobs growth, 150 plus thousand new jobs, but then there are people who are concerned that that's not enough to keep up with the growth in the working age population. Also some revisions on some prior months. And GDP is not as strong -- it's showing some slowing there in GDP. So, watching all those numbers, but stocks -- if you're looking at your, you know, 401-K and your stock portfolio, you're seeing some gains.</s>VELSHI: Yeah, the Dow has been hitting records for months. But this week, we saw something that you may not have really been thinking about -- the S&P; finally caught up and hit its first record in seven years.</s>ROMANS: And that's the broader index, right? That's 500 stocks. So, enough of that little history lesson. We want to know this: What do you do now with this news? How could you profit from it?</s>VELSHI: And Ned Riley, who's been with us to talk about records on the stock market many times, with us again. He's at Riley Asset Management. He's the chairman and chief investment strategist. Now he predicted -- Ned, welcome to the show. You predicted at the beginning of the year this was going up. The interesting thing here is that the S&P; 500 is 500 stocks, the Dow is 30 stocks. Tell me how investors should think about this.</s>NED RILEY, RILEY ASSET MANAGEMENT: Well, basically, I think they should pay attention to the S&P; 500. I still like the market. I liked it at 13,000. I liked it at 12,000, 11,000 and the reason is fairly simple, right now. The bears right now are looking for an immediate correction. Those that are even slightly bullish are looking for a correction in this market. And there are other people that are saying, there's no potential return out of the stocks. The point I'm getting at is that people are still looking at the market as half empty, not half full and the bears, way back at 10,500, and now telling people to take profits. Well heck, they kept them out of the market at 10,500. Where are the profits because they were told not to buy stocks.</s>ROMANS: OK, so if I had taken your advice last time I talked to you and if I had taken your advice way back in February, I would have made some money. You said to buy the Spiders, then. Do you still buy them -- first of all, what's a little -- the itsy bitsy Spider and do you buy it right here?</s>RILEY: I would buy the Spider here. The Spider is basically the Exchange Traded Fund of the S&P; 500 stocks. When somebody buys the Spider, the S&P; 500, they're buying basically a cross section, well diversified list of securities, 500 securities that gives them all sectors representation: oil, technology, financial stocks, consumer nonvariables, all the way down the line. So people don't have to guess about Microsoft and Intel or try the guess between Sears and someone else. The bottom line on those things is simple -- you get what you pay for. At the end of the day, if the S&P; 500 is up 1.2 percent, your portfolio should be up 1.2 percent with those Spiders.</s>VELSHI: A Spider is an example of an ETF. Now we want to talk about ETFs and index funds. You've talked about those before. First of all...</s>ROMANS: Alphabet soup -- Spiders and ETFs.</s>VELSHI: Right, this is a good to know, because if you aren't doing anything in your money or it's sitting in a bank account or you don't want to follow stocks but you're seeing all this money being made in the stock market. An ETF -- Exchange Traded Fund is something you recommend. That's what a spider is?</s>RILEY: Basically, that's what it is. I mean, there are tons of Exchange Traded Funds today. Unfortunately, it's getting complicated because there are over 300 of them now. Before, it's fairly simple. You had the S&P; 500, you had the Dow index, you had International Index, now we've got Sector Bets, that is there is an Exchange Traded Fund for technology and financial stocks and so forth and so on. I just would advise people to stay with the bigger names out there. When you start going to the emerging market Exchange Traded Funds or some of the Country Exchange Traded Funds, we're taking a lot more risk than if you bought the S&P; 500, the QQQQs...</s>VELSHI: That's the</s>NASDAQ. RILEY: NASDAQ 100 stocks or the, you know, the Wilshire 500. I would say diversification and participation in the market are critical for individuals and don't try to pick individual stocks because this is not a game to practice on. This is something that people spend 10 and 12 hours a day doing and a lot of them don't do it successfully.</s>ROMANS: Yeah, if you're not smart enough to really follow every single move, I mean, you know, there's a lot of -- there are a lot more people in the market who are smarter than we are as individual investor and spend much more time at it. You also like one of those tech ETFs, right? Maybe financial services? What are some of the specific sectors to look at right now as an entry point?</s>RILEY: Well, I think the financials, particularly in the bank sector, the bank stocks have kind of hit a brick wall since interest rates have moved on the long bond from 450 up to a 490. I think that's holding it back in the subprime issues. I'd like to buy some of these areas that are lagging. Technology has done OK. But, this is a growth area of the future, as far as I'm concerned. You can find very few sectors that are going to grow above average in terms of unit growth and eventually translate it into much better profit growth. The analysts have always been too optimistic in incorporating estimates for these companies. I think once the dust settles, you're going to see the company growing between eight percent and 12 percent, and that could be a lot of tech companies, are going to be afforded a premium multiple anyway. And at least there'll be some secular trends working for technology group that you don't have in energy and you don't have in the cyclical.</s>VELSHI: Look, is this the bottom of the market in 2002. Energy stocks have gained over 200 percent.</s>ROMANS: Wow.</s>VELSHI: Let me ask you about something else. ETFs as an option. This is for people who have trading accounts, who like to buy stocks, they want to feel the energy of the stock market. There's another option called Index Funds which you' buy through whomever you buy the mutual funds. Their kind of the same thing, you can buy and S&P; 500 Index Fund and you can buy and S&P; 500 ETF, like the Spider. What's -- why one over the other?</s>RILEY: Costs. And not the big cost, either. But Index Funds are the cheap vehicle to be used. Actually, the advantage of the Exchange Traded Funds is they trade like a stock every single day. So, at 12:30 in the afternoon, you could sell out that Exchange Traded Fund if you wanted to. On the Index Fund, you have to wait until the end of the day. So, it's a matter of structure and even in costs. The interesting thing is the Exchange Traded Funds are extremely tax efficient.</s>ROMANS: Right.</s>RILEY: The managers are able to minimize taxes...</s>VELSHI: And they exactly mirror whatever you're buying. So, if you're buying the Spider or the Exchange Traded Fund or and Index Fund in the S&P; 500, it's exactly what that index is doing?</s>RILEY: Exactly within some statistical error. But I'm talking about a tenth of one percent and it's the fee issue that may cause a differential. I might add one more point here. A lot of people, including State Street Global Advisors have been putting out what they call Enhanced Exchange Trader Funds, meaning that the managers are tinkering around with the model to try to get that particular fund to do a little better than the S&P; 500 or the QQQQs. I would say for the average investor, stick with the -- you know, stick with the basic vanilla Exchange Traded Fund and don't try the enhanced. But the enhanced -- I know these guys who developed over at State Street, anyway, they're smart guys, and they know what they're doing.</s>ROMANS: Ned, 10 seconds, bottom line. Don't be afraid that stocks are up so much over the past five to seven years, you can get in here right now.</s>RILEY: I believe so, and just don't listen to the Wall Street chatter?</s>ROMANS: OK.</s>VELSHI: Ned, always a pleasure to have you on this show. Thank you so much.</s>RILEY: Thanks a lot.</s>VELSHI: Ned Riley.</s>ROMANS: Ned Riley. Up next with the housing numbers pointing every which way, see whether it's time to buy or sell on the housing market. And later, find out if your mom and dad had it better than you do. Plus, learn which fuel efficiency tips really deliver when you take them on the road.