Are You "Covering Your Eyes" And Hoping For The Best?


Do you own ETFs in your portfolio. All the big companies have them, and If you're not familiar, here's a definition.

An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.

These investing instruments will continue to change the landscape of investing. According to Pragmatic Capital-ism. “The rise of low-cost indexing is one of the most transformational trends in modern investing…

As you can see by the chart below, investors are pouring money into these instruments.

What we find is that the switch from active management to inactive (ETFs) is common when things are good! (See below by the end of the green arrow!)

It's very much a bull market phenomenon and part of it can be explained by a fantasy many investors are sold...

From my friends at Real Investment Advice:

"The idea of “passive” investing is “romantic” in nature. It’s a world where everyone just invests some money, the markets rise 7% annually and everyone one’s a winner. Unfortunately, the markets simply don’t function that way!"

The rise of low-cost diversified index funds has changed the meaning of an important debate in finance – the active vs passive debate.“While the idea of passive indexing works while all prices are rising, the reverse is also true. The problem is that once prices begin to fall the previously “passive indexer”, content to be a buy and hold indexer morphs into a panicky seller. Many experts feel that with all the money going into ETFs since the election, the table might be set yet again for an unhappy ending. Even those of you who let your investments ride (passively) are not passive in the least bit. The choice to do nothing is hardly passive and many indexing approaches are NOT passive.

So be careful! ‘Embracing passive investing is exactly this sort of ‘cover your eyes and buy’ sort of attitude. Would you embrace the very same price-insensitive approach in buying a car? A house? Your clothes? Of course not. We are all very price-sensitive when it comes to these things. So why should investing be any different?'”

That's just the way it works!