Many investors desire income and diversity from their investments. Before the Great Recession hit, many investors were confident that individual stocks would fulfill those desires. Carefully chosen individual securities can still meet those goals. But, thanks to the advent of exchange traded funds (ETFs), investors can now choose specific ETFs to meet those needs and avoid the risks that come with investing in a single stock instead of spreading out that risk by owing a basket of stocks via an exchange traded fund.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Owning Bonds Made Easy
ETFs now allow investors an easy path to owning bonds, an often difficult and expensive process for many individual investors to do. Today, with American corporations sitting on more cash than ever, bond security is fundamentally sound. Of course, with that safety comes lower yields. Still, the SPDR Barclay's Capital High Yield (ARCA:JNK) offers investors a 4% yield, trades at about $36 and has a stated net asset value (NAV) of $37. As the name implies, JNK invests in high yield bonds, affectionately known as "junk bonds." Holdings include bonds of casino operator Harrah's and Lyondell Chemical. While trading at par with NAV, the iShares iBoxx Investment Grade Corp Bond (ARCA:LQD) yields 4.5%, and invests in bonds of the highest quality names like AT&T (NYSE:T) and Wal-Mart (NYSE:WMT). Shares in the ETF trade for $111 against a NAV of $111. (For related reading, see Using ETFs To Build A Cost-Effective Portfolio.)

Alternative Yield Options
Investors who are comfortable outside the safety of bonds can find ETFs offering significantly higher yields. The Alerian MLP ETF (ARCA:AMLP) invests in energy master limited partnerships. Energy MLPs do things like transport oil and gas via pipelines - businesses that generally have cash flows less susceptible to volatility. AMLP yields over 6% via its holdings in names like Kinder Morgan Energy Partners (NYSE:KMP) and Magellan Midstream Partners (NYSE:MMP). Kinder Morgan is one of the largest pipeline operators in the U.S. with over 15,000 miles of pipelines for transmission of natural gas and oil. Oil and natural gas pipelines are like the veins of the economic system; as long as the economy has a pulse, pipelines will always be in use.

The Bottom Line
With 10 U.S. Treasuries barely yielding above 2%, investors are likely to lose money with inflation, likely to approximate 3% over the upcoming years. ETFs provide a way for those investors seeking to earn above-average rates of return without the company specific risk tied to investing in one company. Investors who also hold them for a period of years, and may enjoy capital appreciation in the ETF price. (For related reading on inflation, see What You Should Know About Inflation.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  4. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  5. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  6. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  7. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  8. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  9. Economics

    Will Silver Recover in 2016? (SLV, GLD, JJC)

    The end of the silver downtrend is likely to coincide with similar recoveries in gold, iron and copper.
  10. Stock Analysis

    The Top 5 Silver Penny Stocks for 2016 (LODE,AG)

    Learn about five of the top silver penny stocks and why investors may want to consider adding them to their investment portfolios in 2016.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
Trading Center