June 27, 2008 at 6:00 am by Tom Lydon
Noted exchange traded fund (ETF) critic and Vanguard Group founder John Bogle recently shared his thoughts about sector and leveraged funds.
At a meeting before the Financial Planning Association, he praised ETFs for their endorsement of the index-fund concept and their generally low costs, says John Spence for MarketWatch. He likes the concept of using broad-market ETFs and holding them for the long-term, and even utilizing them in limited amounts to reach certain goals.
Where the praise ends is with sector funds "that range from the reasonable to the absurd," as well as leveraged funds. He was also critical of some forthcoming ETFs designed to triple returns. "Could quadruple be next?" His concern is that some types of ETFs could hurt more than they help.
We agree on the latter point - three-times leveraged funds could be way too much octane for the average investor.
But as for those ETFs that represent thinly sliced sections of the market - why not let the investors decide for themselves? Not everyone is going to want the same funds, and not every fund works for every investor. Keeping it as individual a choice as possible is the best thing to do.
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July 7th, 2008 at 2:18 pm
question: we all know john bogle’s position on investing in broad based index funds and holding for the long term. My question is; in keeping with Bogle’s philosophy, why not just keep it simple and invest in Vanguard’s low cost total USA index fund (VTI) has over 2,000 different stocks for USA equity exposure and for international equities, invest in low cost all world xUSA (VEU)…also has thousands of stocks? Therefore with these 2 ETFs, you have instant total diversification on a global basis.
July 7th, 2008 at 2:54 pm
Those funds can be a great option for investors who don’t want to take the time to do a lot of research and tracking and would rather just “set it and forget it.” But there are also a lot of investors who would rather do their own asset allocation, even in a buy-and-hold portfolio, and those funds wouldn’t be right for them. It’s all a matter of preference!