There was an excellent article discussing the pros and cons of investing in Exchange Traded Funds (ETFs) in the July 3rd Wall Street Journal: As ETFs Seek Niches, Risks Rise (unfortunately, The Wall Street Journal doesn't allow us to link to their articles, perhaps that will change after Rupert Murdoch buys Dow Jones.) There's over $500 billion invested in Exchange Traded Funds and, I believe, they will either replace open-end index mutual funds or force those funds to lower their expenses.

Want to structure your mutual fund portfolio to achieve optimal returns for the next twenty years? Read on or just skip to the last paragraph.

There was a great article in the June CFA Institute publication Expected Rates of Return: Back to the Future by Jim O'Shaughnessy. Mr. O conducts solid research, writes clearly, and makes recommendations.

Bonds have higher yields then stocks. Bond funds have higher yields then stock funds. This means more current income for you. Bonds and bond funds are safer then stocks and stock funds, according to conventional wisdom. Bonds fluctuate less in value. That's good, too. So what's wrong with this picture? The interest paid on bonds doesn't grow (they're called fixed income securities for a reason), nor does their principal value.

Financial leverage is like a land mine. You might be unaware of it until it blows up. Buying stocks on margin is an obvious form of leverage (the mortgage on your home is another) and all of us understand how risky it is to buy on margin.

Simply put, leverage magnifies your gain or loss and, since you're borrowing money which must be repaid, you can lose more than your entire investment (the investment and the loan amount).

One of the mantras of mutual fund investing is to look at a fund's turnover before you buy it. The implication is that a high turnover is bad. (Turnover is the percentage of a funds holdings that are traded during a year. Funds can have a turnover greater than 100%, which means that their average holding period per investment is less than one year.

Income is hard to come by these days. Treasuries are yielding less than 5%. The bond market is in disarray, credit spreads are widening (meaning the price of existing bonds is declining) and there are serious liquidity issues (which also impact value).

Have you considered Real Estate mutual funds? Many have current yields in the 5-8% range (primarily REIT-Real Estate Investment Trust-funds).

There's an old adage in the brokerage community that you should speculate for growth, not for income. Speculation isn't the right word, but the broker who coined it (pun intended) probably wasn't an English major (most brokers aren't).

The point is that you should take risk with investments which you expect to increase in value, i.e.

The recent events in the stock and bond markets drew everyone's attention. No doubt you took a look at your investments and, perhaps, worried about one or two. Maybe, you made some changes to your portfolio. Let's take a look at your experience and see if there are some lessons to be learned.

Did you lose sleep, literally or figuratively, over any of your investments? This is the gut check measure of risk tolerance, not quantifiable, but accurate nonetheless.

Which of your investments worried you most during the recent market correction? If it was one of your smaller holdings, you're not alone.

We all have only so much time and so many brain cells to devote to investing. If you're focusing yours on a tiny portion of your investments, the majority of your net worth is going unwatched.

Many investors I speak with are focused on only one or two of their investments or, worse, are fixated on the one they sold which has since gone up in price.

A current theme among Wall Street wealth managers is for individual investors to have index funds as their core holdings and to focus the remainder of their assets in high alpha investments, which will produce returns not correlated with the market.

A quick digression for those of you who aren't familiar with alpha and beta. In traditional finance, return not correlated with a broad market index, such as the S& P 500, is referred to as alpha.

Believe that a part of the economy will be particularly strong or a part of the stock market is undervalued?

Sector mutual funds are one way of investing in market niches. Sector funds enable you to pinpoint your investments in areas such as health care, biotech, and technology (or financials, after the Fed rate cut).

ETFs are another, but have some additional risks.