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Are ETFs really the future of investing?


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Just toss it in SPY and wait 30 years all will be fine. 

I seem to hear the above line more and more these days. Don't get me wrong I think index funds have made investing much more accessible to the everyday person. It is a great way to spread risk across a large basket of assets and play what ever sector of the market you desire. 

There are ETFs for so many different concepts now it can be overwhelming. 

So it is great you can choose a country, sector, strategy, and so many more things and quickly diversify your investment portfolio. 

I just have to stop and ask myself every now and then do ETFs lead to crowded trades? Meaning are we paying to much for the basket of assets that an ETF may hold. 

Think about all the people that are constantly adding new money. They are not choosing which individual equity they are going to buy but they are going to buy the entire basket regardless of what the individual assets are trading at within the basket. 

Now I hold some index funds myself but a vast majority of my stock market investing is outside of funds and looking for assets I see as being affordable. Sure I get my butt kicked every now and then and I have had assets go bankrupt. So there of course is risk either way. 

Sometimes just stop and worry about all the inflows into these funds. Or start thinking what if everyone trys to pull their money at the same time. How does this correlate with the basket of equities owned by the ETF? 

If you are just getting started I would likely put the cash into SPY or a total market fund to begin with but as the bankroll got larger I would start to try to find other options outside of the fully passive investing strategy. 

Do you think ETFs are a problem? Do you think that they make the market move a little more aggressively in either direction when large events happen? Would love to hear your thoughts. 

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  • 3 weeks later...

It really is all going to boil down to how involved you want to be with your investing. ETFs are great for quick diversification across a sector, region, or any other kind of theme you can think of now days. No one is able to predict the future so wide diversification should keep risk balanced pretty well. 

The major brokerages such as Vanguard or Fideilty have 0 fee ETFs. 

Fees can eat into your earnings over time so looking at what those are will be important to your investment philosophies. 

The way I like to think about cash and assets is having these buckets. 

So I like to have 6 months of cash on hand for living expenses as my emergency fund, then a couple years of living expenses in index funds. Then from there I enjoy doing research and making my own individual picks. I do have rules for sizing positions, averaging down, max allocations all to make sure I am still providing myself a durable portfolio that hopefully will be able to stand the test of time. 

I love MJ, MO, FZROX so that is a great start. 

The most important thing is being able to sleep at night and feeling like your assets are secure. 

Do you have any SPY?

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