by Archie M. Richards, Jr.
August 20, 2007

Bill writes, "Your book, "Understanding Exchange-Traded Funds," suggests that an investor with substantial investment money might add two exchange-traded funds of mid-sized companies to the nine ETFs you recommend. The amount I'm investing is substantial. How should your percentages be changed to make room for the two mid-caps?

Thanks for asking, Bill. My investment recommendations can be found in archierichards.com / Suggested Portfolios.

Only the U.S. ETFs are changed by the addition of the two mid-sized ETFs. The percentages of foreign stocks, real estate investment trusts (REITs), and long bonds remain the same.

Here's the revised mix of U.S. stocks, all of them Vanguard ETFs: Big growth (VUG) 10.0 percent; Big value (VTV) 3.0 percent; Mid-cap growth (VOT) 7.5 percent; Mid-cap value (VOE) 2.5 percent; Small growth (VBK) 5.0 percent; Small value (VBR) 2.0 percent.

Bill also asks, "Given the current real estate situation and my ownership of a 17-unit apartment building, should I buy the ETF of real estate investment trusts?"

If the value of the apartment building, Bill, represents about 20 percent of your total investments, skip the REITs. (Don't count your home among your total investments.) If the apartments are less than 20 percent, buy enough REITs to bring the real estate investment section up to 20 percent.

Don't wait on buying any of the REIT ETF. No one knows exactly where the bottom is. Buying when the news is bad usually comes out fine. Remember that for everyone who's selling, someone else is buying.

Assume you're going to be wrong about the short term. This relieves the anxiety and helps you to get in to benefit from the long-term uptrend.

Sam writes, "I was offered the services of a financial advisor of the Bank of America at no cost. My conservative investments hadn't done particularly well, and I needed direction.

"The advisor asked about my goals, expectation and risk tolerance. A week later, he suggested I put the qualified money into an annuity diversified among 7 funds and the non-qualified money into 9 mutual funds. These are similar to the portfolio you suggest, and they've done okay.

"But I'm just not sure of my advisor's motives. He and the bank are making money somewhere; I'm not sure where. The Bank of America seems greedy - always thinking of ways to squeeze more out of its clients. I like your exchange-traded funds approach and am considering following your investment suggestions with other funds. Would this make sense?"

Sam, your advisor's motive is to make money. Isn't that your objective when you're on the job?

Directly or indirectly, you make money on the job by meeting the needs of your company's customers. Over the last century, Bank of America has grown hugely by meeting its customers' needs. In the long run, this is the only way to make money. A company that's just "greedy" and "squeezes more out of its clients" doesn't stay in business long. There's too much competition from companies that earn money the right way.

Just because you didn't pay a fee to the financial advisor didn't mean he worked for nothing. He was paid by the insurance and investment companies whose products he persuaded you to buy. No doubt he wasn't shy about urging you to buy. But he was darn well meeting your investment needs, and he seems to have done a good job of it.

If you think my investment suggestions are better than the advisor's, go ahead and use them. I get paid by this newspaper for writing a column you want to read. I don't get paid by the investment companies whose products I recommend. I can therefore suggest investments that not only have good prospects, but also rock-bottom costs.

But Sam, change your attitude that successful companies are greedy. Free markets and competition make possible companies like the Bank of America and this newspaper. Free markets and competition are the best and most humane methods for meeting human needs ever developed.