Some ETF industry observers theorized that the ease at which ETFs can be traded throughout the day would do more harm than good as an investor’s trading costs would pile on and, in aggregate, lower investment returns. However, Vanguard recently came out with a research paper that argues against the harm. [Are ETFs Turning Investors Into Day Traders?]
“We conclude that it is not valid to assume that the so-called ETF temptation effect explains the higher-observed trading in ETFs relative to mutual funds, nor is it a reason for long-term individual investors to avoid using appropriate ETF investments as part of a diversified investment portfolio,” according to a Vanguard research paper. [Vanguard Study Finds ETFs Don’t Influence Trading Behavior]
“We found that, contrary to speculations in the popular media, most investments are held in a prudent, buy-and-hold manner, regardless of share class,” the research reveals, pointing to the fact that “investors who are inclined to trade choose ETFs, not that investors who choose ETFs are induced to trade.”
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Max Chen contributed to this article.