In a year full of unpleasant surprises, heavy losses and wounded portfolios, the scandal surrounding Bernard Madoff has taken the cake. What’s more, he’s not only managed to make all the other events on Wall Street look good this year, but he’s also bolstered the case for exchange traded funds (ETFs).
Brett Arends for The Wall Street Journal reports on why the case for mutual funds (and we think even more so, ETFs) just got stronger. All 10 points are very relevant for investors who are thinking of opening an online account and using ETFs:
- By being a self-motivated individual investor with your own online account of ETFs, you will always know how much money you have and where it is, plus you can take it out whenever you want. No more waiting for that call back!
- Performance figures and data are updated every day and they are updated daily, not quarterly.
- The control is all yours, with no pressure and no new wave investments to jump into. All information is out in the open for the public to read, so you will know what is going on with the provider and their funds. Plus, there are no managers to fire.
- ETFs have total transparency. Mutual funds have to publish their holdings quarterly – ETFs do it daily.
- There’s no need to deal with a manager – ETFs that track indexes don’t need them.
- You’ll save on fees – on average, the average ETF expense ratio is far less than the average mutual fund expense ratio.
- You’ll get instant diversification.
- You’ll learn new things – ETFs make it easy and simple to diversify your portfolio and they’re simple to watch and a snap to research, since everything you need to know is out there.
- You won’t wake up one morning and learn that your money is all gone. When ETFs close down, they follow an orderly process. Depending on when they sell their shares, investors will either get the value of their shares at the time of selling or the proceeds from the sale of the securities within will be distributed.
- Not only do ETFs have low fees, but they give investors the chance to get the kind of diversification that would be awfully pricey if they chose to buy individual shares. If you want exposure to Google (GOOG), you can either purchase a single share at upwards of $300. Or, you can get a share of iShares Dow Jones U.S. Technology (IYW), which holds Google at 5.6%, along with a slew of other tech companies, for about $35.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.