A limit order to buy asks you to name a price above which you walk away and go home. No purchase will be made. (A limit order to sell asks you to name a price below which you will not sell. No sale will be made.)

What does the standard deviation number tell you? Let’s take ETF A as an example. The standard deviation of 3.09 tells you that in about two-thirds of the months to come, you should expect the return of ETF A to fall within 3.09 percentage points of the mean return, which was 1.66. In other words, about 68 percent of the time, returns should fall

Modern Portfolio Theory is to investing what the discovery of gravity was to physics. Almost. What the theory says is that the volatility/risk of a portfolio may differ dramatically from the volatility/risk of the portfolio’s components. In other words, you can have two assets with both high standard deviations and high potential returns, but when

There are now ETFs that represent all those asset classes, and many more. Building an entire well-diversified portfolio out of ETFs was not humanly possible several years ago; it is very possible today. I’ve done it numerous times!

According to ETF Deathwatch, any ETF that is at least six months old and has an “Average Daily Value Traded” of less than $100,000 for three consecutive months — or that has assets under management of less than $5 million for three consecutive months — is probably not an ETF you should get overly attached to. To find the Deathwatch blog, go to

The first questions I ask myself — and the first questions anyone building a portfolio should ask — are these: How much return does the portfolio-holder need to see? How much volatility can the portfolio-holder stomach?

Keep in mind also that many commodity mutual funds exist. If you want to try an actively managed approach, don’t want to have to file pesky K-1 forms, and don’t want the credit risk that comes with ETNs, some of the available funds may be reasonable options. Because this book is not about mutual funds, I won’t go into much depth here, but one

In a way, beta is easier to understand than standard deviation; it’s also easier to misinterpret. Beta’s usefulness is greater for individual stocks than it is for ETFs, but nonetheless it can be helpful, especially when gauging the volatility of U.S. industry-sector ETFs. It is much less useful for any ETF that has international holdings. For

Stop-loss (or stop) order: Designed to protect you should the price of your ETF or stock take a tumble, a stop-loss order automatically becomes a market order if and when the price falls below a certain point (say, 10 percent below the current price). Stop-loss orders are used to limit investors’ exposure to a falling market, but they can (and