Leaving the dark side of the force...

ETF

(Fortune Magazine) -- There's nothing Wall Street loves more than having a new product to peddle, and exchange-traded funds (ETFs) have been one of the most popular offerings of the new century.
Last year no fewer than 156 new ETFs hit the market; today, the total is about 400.
The pace is set to pick up this year when the Securities and Exchange Commission streamlines the approval process. And ETF sponsors are hoping to make them available in 401(k)s, which would give them a much broader audience.
So with all the hoopla surrounding ETFs, you may feel you have to have one -or collect the whole set! But as you would with any novelty from Wall Street, give ETFs a careful look before plunging in.
ETFs are similar to mutual funds in that they hold a basket of stocks, giving you a diversified portfolio with just one purchase. But unlike mutual funds, they are traded on exchanges, where you can buy and sell them throughout the day, like stocks.
Despite their rapid growth, ETFs still claim a relatively small share of investors' dollars. Chicago research firm Morningstar says there is about $419 billion in ETFs, vs. $7.5 trillion in the roughly 6,500 conventional stock and bond funds.
Low cost is a key to ETFs' appeal.
Because ETFs are passively managed - they all track indexes of one sort or another - annual management fees are minimal. The average ETF has a 0.41 percent expense ratio, vs. 1.35 percent for an actively managed mutual fund and 0.74 percent for an index mutual fund. ETFs are also considered more tax-efficient than mutual funds, a factor that can boost returns.
The first ETFs tended to track broad benchmarks, like the popular SPDR (Charts), which is pegged to the S&P 500, and the Nasdaq 100 (Charts), which follows the index of the same name. Now that the major bases are covered, ETFs are becoming increasingly focused, offering access to highly specific - and sometimes obscure - market niches, from single countries to futures prices to stocks with low price-to-book ratios.
Some of these specialized portfolios can be useful, but the candy-store approach can lead to investor indigestion. "Who needs an ETF tracking the companies with the most patents?" says Ronald DeLegge, editor and publisher of etfguide.com. "You can index anything, but that doesn't necessarily mean you want to."
Indeed, ETFs have distinct pluses and minuses.
For someone trying to get started without a lot of money, one big advantage of ETFs is the lack of a minimum investment. The most popular index fund, the Vanguard 500 Index, requires an initial investment of $3,000. But you can buy as little as one share of the SPDR for $141. Of course, that doesn't include the commission you pay when you buy and sell shares in an ETF - and that's a minus. While using a discount broker can keep your transaction costs relatively low, if you're planning to make regular modest investments, you're better off with a no-load mutual fund.
ETFs also allow for instant gratification, since you can trade them whenever the markets are open. But for long-term investors, that's hardly a necessity. So don't get carried away by the hype.

ETFs can be a versatile, low-cost vehicle for index investing, but don't feel you need to check out every new model that comes off the Wall Street assembly line.

ETFs: A user's guide - February 19, 2007

 

ahhh sorry, from the amount of chirping you do I thought you actually had some experience and money on the line! Its really refreshing to see what you "advocate" though, you are obviously really passionate about it

 

That's right, I don't have much 'money on the line' with index funds/ETFs myself, but I do believe they provide a far better and more logical alternative to the various active investing approaches espoused - which for the vast majority of investors (including those posting here), I believe are are largely un-reliable as well as great time and money wasters...more like speculating, not investing. I'm glad I managed to persuade Sim to start the new sub-forum on "Passive Index Funds and ETFs". I think this topic will generate more and more interest in the coming years. Good to have someone like MJRoss on board too, who's got far more 'expertise' and experience on this topic than I do.

 

Now we know what you invest in - plenty of tickets on yourself! In all seriousness, I do not disagree with your thoughts on indexing. My issue is that you come out preaching as if you are a fervent disciple of indexing, yet you have no experience in constructing an indexed portfolio - it is fair enough to scream "index! index" but where are your posts on actual asset allocation and risk management in constructing a truly indexed portfolio?
All you do is copy posts from other forums and reference them as if they are gospel, and imply that anyone that doesnt agree with you is downright wrong, uneducated, and dimwitted. There is no substance to your posts.

You ignore the fact that there are a great many people in the world who have achived results far superior to indexing, and over a very long term (which pretty much eliminates the luck theory).

You harp on about stock picking and sector picking as if they are sins, yet the indexing gurus of the world (Bogle, et al) dont state that these are the reasons most people fail to outperform the index. They clearly state that the reasons are 1) High fees, and 2) Inefficiency (particularly tax inefficiency through selling and changing funds).

If you are going to argue with people and insult their intelligence, no problems, but at least do it on topics you have researched and have some experience in. Again, I dont disagree with you about the benefits of indexing as an effective passive strategy, but I for one get a lot more out of someone like DKMC, who intelligently posts reasons, experiences, examples, ideas, and suggestions. At least with him you can tell he is posting for everyone's benefit and education, not just to stroke his own ego.

 

Adios!

You make a lot of assumptions here coopranos .

I don't have much money in index funds NOW.

I have researched this topic and I do have experience in it...and NO, I don't consider myself an 'expert'.

I initially started this 8 years ago when I was in Canada and America, and well before you probably even heard of index funds.

Why should I waste my time posting about things that you can read up on for yourself, and already are (and do you seriously think I even care about the 'substance' of what I have posted about or what I haven't posted about on THIS 'Navra die-hards' fan-club/forum!)?

There are NO 'secrets' on this topic.

It's not very complicated either.

If you want to make 'asset allocation' and 'risk management', or 'portfolio constuction', an active and involved process, as appears to be your inclination (as with most 'active investors')...go for it!

But this is NOT in the style of a passive investment approach, which is what investing should be - particularly with index funds/ETFs. Otherwise, it becomes like any other JOB.

I don't have anything 'new' to add here, and neither does 'dkmc' for that matter, who is simply posting about what the real experts on this topic have been saying for years...but is clearly a 'revelation' to many of you here (including you) who have been ignorant on this subject for years, and clearly fooled by the financial proganda and 'pornography' of recent decades.

How's THAT for 'insulting your intelligence' .

Am I hurting YOUR ego too?

I know it must be hard to admit you got it wrong...the realisation can be a slow, painful and expensive process, I feel for you in this difficult and confusing time.

If you're really having trouble, I recommend you read Mark Hebner's, '12 Step Program for Active Investors' :

Amazon.com: Index Funds: The 12-Step Program for Active Investors: Books: Mark T Hebner


Having said that, I'm not wasting any more time on this forum !

Good luck to you.

PS: Still looking for a picture of a blind-folded monkey playing darts.

 

Yeah fair comment.
I am sure you can tell from my posts on the topic that I am a Navra die-hard. And you can pretty much read up on every topic on earth, so by your logic you shouldnt post at all. Sounds good.

Of course they are active and involved processes! At some point you have to make the decision as to what you consider constitutes an indexed portfolio. Just putting money into a Vanguard Aust Share Fund doesnt mean you have an indexed portfolio.
What indices do you include? Just Australia, or US as well, or Asia, or Europe? How far do you take it? What % in each? How much cash? Any tilt towards big caps or small caps? These things will all make a significant impact on a portfolio.
Once it is set up, do you rebalance it or just let it run? Like it or not there is still a significant "active" component in index investing, unless you just pick one indexed fund (which is arguably not true indexing).

But this is NOT in the style of a passive investment approach, which is what investing should be - particularly with index funds/ETFs. Otherwise, it becomes like any other JOB.
[/QUOTE]
I doubt any investor who is sucessful over the long term would agree with this. All investment requires effort, whether that is monitoring your portfolio, cleaning up after a tenant, or the mental discipline to keep going. Your line of thought seems more akin to the old "dump money into super and forget about it" approach.

Thats a shame, you had so much to offer while you were here.

 

You certainly like to lay down the absolute gospel. Perhaps thinking that you have the one and only right way gives you a sense of comfort?

Easy

 

Most of my investments are in shares but I do wonder (often) if investment property is the way to go. Hardly anyone I know lose money on it and most make good money in long term and seems to be alot less stress too.
But I can't seems to get myself to invest big in IP.