2009 is shaping up to be a boffo year in equities, real estate and commodities markets.

Yeah, and my aunt would be my uncle if she had, uh, some of the sorts of things uncles have.

Really, it's hard to know what to make of the tea leaves of consumer confidence and macroeconomic numbers. I do get the feeling, though, that the world will survive, and that businesses will come out better—more sensible, more efficient, more competitive—on the other side. So, big picture, I actually like all of this, assuming unemployment doesn't soar to 15% or something. It's sort of like we're going to economic boot camp, getting in shape and cutting out the Doritos.

On the fixed-income thing, Matt—well, I'm 40, so I should have 40% in bonds now, right? I just cannot see that happening any time soon. The TYPES of bonds? Uh, well, you've got to love those zero-yielding Treasuries (in a dollar currency that the professional investing world is extremely bearish on), but then, since when did consensus drive ANYTHING, particularly relating to currency direction?

Can we buy Chinese government Treasuries? Oh, yeah, that's right, they're buying all of OUR Treasuries.

Mainly, I have to admit, I am excited about the new year, the more-rational environment we seem to be headed into, the opportunities ahead. And I'm VERY excited about our Inside ETFs conference next week in Boca (Jan. 11-13). It feels like the whole ETF industry and the biggest group of ETF investors at an event are excited too, ready to start the new year, recharged after some brutal markets and a holiday respite.

Looking forward to seeing you all down there ...

I'm surprised you're just now considering a fixed-income allocation in your portfolio, Jim.

You must be tougher than I am. I'm eight years your junior, and I've had a small investment in bonds for some time. I know that it might cost me some incremental return, but the reduced portfolio volatility is worth it for me. What's more, I figure I'm already highly leveraged to the equity markets through my career, so the extra added cushion is particularly attractive.

I'd be interested to hear about how and why you decided now, at 40, was the time to jump into the great fixed-income market. Also, where are you looking on the fixed-income scale? We've been in an extraordinary moment in the fixed-income market, with potentially very interesting opportunities on the corporate side, but also high risks. As a newcomer to the space, where are you heading in your portfolio?

Beyond that, though, I'm mostly in line with your New Year's Resolutions. I'm not sure I'm ready to overweight emerging markets, but otherwise, I think you're mostly right on. 

My key resolution on the investment front is simple: Keep investing on a monthly basis in my asset allocation mix, on both the taxable and retirement sides. I continue to think this will be looked back on as a great opportunity for long-term investments, even if the road from here to there is rocky.

2008 taught me a few lessons about how to understand the present and look at the future.

I hope that everyone feels as I do, that the holiday season was a great opportunity to relax and reflect on what has been a wild (and tough) year ... particularly the last 3 months of it. I think we're all a bit shell-shocked, so it's been nice for me to have an opportunity over the past two weeks to step back, clear out some work and recharge my batteries. 

Looking forward, I'm excited about our Inside ETFs conference, coming up in just over a week now. That feels like a springboard to getting back to business, maybe not "as usual," but in the slightly altered version of the financial world we're living in now.

So what are my takeaways from 2008? Here they are, in the form of my resolutions for 2009:

1. I will come up with a solid asset-allocation-focused investment plan and stick to it through thick and thin. I've mainly done this, though 2008 clearly put me to the test.
   
   
2. I will resist the temptation to dive into opportunities (and there have been many of late). I know that mainly this becomes an exercise in ulcer-growth, trying to catch falling knives or ride the serpent of greed.
   
   
3. I will increasingly use ETFs in my portfolios. For all the criticism the industry has had, there are a LOT of ETFs I really like, and they're often less expensive and more efficiently run than their mutual fund counterparts.
   
   
4. I will resist the temptation of the micro-focused "small-cap/clean-tech/wound-care ETF," and its brethren. If there's one thing that 2008 taught me, it's that volatility is NOT my friend.
   
   
5. I will be wide awake with respect to credit risk in the market (enough said on this one).
   
   
6. I will put some fixed-income exposure in my portfolio, having turned 40 last year & mainly having resisted bonds over the years. On the flip side, I'll probably scale back into emerging markets and maybe even buy a bit of gold, which I've been out of recently, but which always has a bit of room at the corners of my asset allocation plan.
   
   
7. I will make sure that I understand as much as I can about each fund I buy, including its credit risk, tax issues, how it gets its exposure to markets, and how it trades with respect to its target market.
   
   
8. I will stay indexed. This isn't a hard one for me, as I'm pretty much 100% there.
   
   
9. I will continue to taunt Matt Hougan through the New Year. No reason to change on this one.
   
   
10. I will trust in Bobo, the dart-throwing monkey.

There you have it. TEN resolutions. That's quite a few. But they don't seem like too much to handle. Right?

You're absolutely right that we should keep the big picture in mind when we're dealing with capital gains.

ETFs—at least, traditional equity and fixed-income ETFs—remain extremely tax efficient.

I've been pulling together the data on capital gains distributions for equity and fixed-income ETFs in 2008. By my count (and my numbers are rough), 54 out of 684 relevant funds paid short- or long-term capital gains distributions this year. That's 7.9% of the ETFs, which is way up from last year's level of just 0.3% of all funds.

The culprit, as discussed, is the inverse and leveraged funds. They account for 42 of the 54 recorded distributions. And more importantly, they account for ALL of the major distributions: Among the other 12 ETFs that paid distributions, none paid out more than 1% of the fund's net asset value.

Holders of traditional equity and fixed-income ETFs can rest assured, then, that ETFs remain as tax efficient as ever. But holders of more-exotic funds must stand on guard.

Speaking of perspective ... I'm on vacation tomorrow, so this will be my last blog of the year. From a finance perspective, it's goodbye and good riddance. This year was manic and awful for investors, with huge speculative bubbles and huge bubbles burst. We're only beginning to feel the pain in the real-world economy, and that's certain to get worse in the first part of 2009.

As I've said before, however, I'm hopeful that we'll see a steady recovery in 2009, and believe that markets have already seen their worst levels. The monetary stimulus has been overwhelming, and generally speaking, pointed in the right direction. It'll take time to work through the system, but it should have an impact in the long run.

For now, best wishes for a healthy, happy and prosperous New Year. See you all in 2009.

I agree that there are real issues with some of the ETF gains being paid out, but let's put this in perspective.

The tone of Matt's blog from yesterday was that while distributions have been issues in the mutual fund business, they're REALLY issues in the ETF business. I think it's time (as we sometimes find with Matt) for a reality check. For long-only asset-allocation-focused investors, ETFs have been a BOON, almost NEVER paying out distributions even as traditional mutual funds shower their investors with the unwanted prizes.

The reason is that by and large, ETFs ARE a better mousetrap in terms of tax efficiency. The creation and exchange mechanism makes it so that these products generally benefit from  rather than are hurt by trading activity in a fund, enabling the underlying portfolio to continually raise its cost basis and lessen its potential capital gains exposure (overhang). And the data bears this out. While there have been very few (and generally small) exceptions, ETFs almost never pay out capital gains, even while traditional funds do, sometimes in big ways.

So the ProShares and Rydex issues are a BIG story, don't get me wrong. But you're nuts if you're long those funds for any period of time, and if you are using them, you'd better understand what you're getting (which I think many investors DON'T). But the leveraged products are sort of a beast of their own, and if you use them, you need to add being aware when the distribution will be to your list of things you've got to know about those funds if you're going into them. But they are NOT representative of the bulk of ETFs, which are generally more tax efficient and pay out lower gains than their traditional mutual fund cousins.

Currencies As Key Drivers For 2009

Currencies have really been on my mind of late. Some of the movements in the markets have been absolutely stunning. And in a market world that is looking increasingly flat or down, the zero sum part of the market may be one of the few places where you can see some big upward movements. So you'd best be paying attention to currencies as you invest. Here are some of my thoughts on currencies posted to our European Web site.

Bobo Goes Global

Also, for you Bobo aficionados out there, our little monkey has taken his European Vacation, and has put together his first portfolio of ETFs using our new European ETF database. We expect Bobo to conquer yet another continent full of active advisors with his blindfolded dart-throwing acumen.