ETF Revolution Changes Investing History As Investors Seek Better Net Returns
Our very brief history of markets gets up to date with Exchange Traded Funds or ETFs; another innovation that has grown into a major part of the market.
This Part 3 of the White Top View Series, Investment Choice a discussion the basic choices for investing. Links to all parts of the White Top View Series, Investment Choice are at the end of this post.
ETF Revolution Changes Investing History
Created two decades ago this major innovation began as a ripple and grew into a colossal tidal wave. Exchange Traded Funds emerged and listed on exchanges or trading just like stocks. That makes them distinctly different and more accessible than mutual funds. ETFs are essentially mutual funds created for the digital age.
Perhaps even more importantly, ETFs dramatically lower costs for investors. ETFs have costs, structure and fees that give investors a very low-cost alternative to expensive mutual fund fees and trailing costs. As noted above, unlike mutual funds, the units or shares of ETFs list on exchanges. That lets investors buy and sell EFTs just like stocks. These basic differences are shaking the fund business to its core. It is no overstatement to say this ETF revolution changes investing history!
There are thousands of ETF choices for investors to pick from. Every imaginable market, sector and approach gets covered by these products. New and different ones regularly appear.
Too many mutual fund sellers obfuscate and purposely produce much misinformation to claim or suggest they offer a different and “better” product than ETFs. However, when you cut through the smoke, mirrors and noise, the story is clear. Compare apples with apples, an ETF tracking exactly what a mutual fund tracks, the ETF investor nets very substantially more.
Any mutual fund owner should carefully investigate using ETFs as an alternative. Seek independent advice. Advice from someone selling only mutual funds can certainly not be taken as either independent or objective.
Exotic ETFs Arrive
Most ETFs are as basic as mutual funds. They are readily understood and simple to deal with. In contrast, understanding the exotic leveraged and inverse ETFs requires deep knowledge. In recent years exotic leveraged and inverse ETFs have emerged. They give investors ready access new complex strategies and alternative market approaches.
Also expanding the choices for investors are a new breed of specialized dealers. They offer investment programs built exclusively on an ETF strategy. Basic products can give complete market coverage and offer reasonable net returns.
In contrast using the exotics properly requires a complete understanding and advanced understanding of the market as well as how exotic ETFs manage their underlying operating formulas. These advanced products quickly pull investors into very advanced investing territory. Few financial industry representatives properly understand the use and risks of exotic ETFs.
Exercise great care when using exotic leveraged or inverse funds. Used improperly, they can quickly blow up a portfolio. Before touching them, do your homework. Learn before you try to earn, or you will burn!…real money that is! New or even investors at an intermediate level should never use exotic ETFs. Stay with the basic products and you will be fine.
We must acknowledge that there are many other developments, some of them significant, especially on the regulatory front. All markets including many not mentioned here or in this series also have a history, innovations and developments.
As needed, we can discuss the other factors and markets in the future. But now, for our purposes, this brief and slight account of market history brings us to our current digital, connected and flat world.
What innovation or development is next? I don’t know. I do know innovation and developments will continue and keep changing the market. We will also keep changing to accommodate and seize the opportunities that inevitably present themselves as a result.
When new to markets and investing or wanting to learn more about investing, take time to learn and time to think. Understanding some background on these most popular financial products can explain why they may have fit well in your father’s or grandfather’s portfolio. Today there are many better choices for their sons and daughters.
Continuing developments and changes in the financial markets matter to your financial health. It pays very well to keep current and aware of the big picture.
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These discussions and information intend to help you better understand markets and investing. I am not a financial or investment advisor; opinions are for informational and educational purposes only and are not intended as investment advice. For syndication of the site or blog, please contact info@WhiteTopInvestor.com.
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Links to the White Top View Series, Investment Choice