Why ETF and index funds rule

http://www.marketwatch.com/story/13-reas...2013-07-24

Nice article to read. But if active trading reduces as more people take ETFs, wouldn't stock brokerages close down?

(24-07-2013, 11:55 PM)CY09 Wrote: http://www.marketwatch.com/story/13-reas...2013-07-24

Nice article to read. But if active trading reduces as more people take ETFs, wouldn't stock brokerages close down?

Isn't that great. We can rechannel these human resources to other industries - hospitality, medical, engineering, logistics, R&D, education....

I am not one the pro index funds or ETF. Take STI, there are companies within that I do not think will perform well in near future, and will not want to invest in them. I have seen from here that it is possible to beat the index by careful selection. I have seen some funds that are able to beat the index regularly, though not always. So if one day I decide to stop looking at the numbers to travel the world, and want to invest via funds, very likely I invest with those funds then.

ETF is the better alternative if one does not have the time or knowledge to invest.

Not everybody finds it a satisfaction to do due diligence.

ETFs do not necessarily mean safe either. There seems to be more and more ETFs that dump a bunch of stuff inside, label it "safe" simply because it is "diversified".

Remember the CDOs? Throw a bunch of junk bonds inside, and the top tranches can be sold as AAA securities simply because the odds of all junk defaulting at the same time is low.

I have nothing against the STI ETF but i wonder how many who buy it realises that 40% of the weight is in DBS, UOB, OCBC and Singtel.

Not every investor need to learn the nuts and bolts to be an investor. Not everyone that needs a harcut need to learn to be a barber.

So if time is limited, index funds are a good bet, but make sure right index. A country index fund is not likely to go zero, but not so for sector funds (eg dot com) or common equity. Secondly one is betting that he can do asset allocation properly, which there are a few simple tricks including dollar cost averaging that requires discipline, which most lack.

Otherwise if one believes in long term return of equities and not so concern about Asset Allocation timing, good professional managers are the way to go. It takes about as much effort as a lady trying to buy a computer.

BTW the article is clearly biased. It's what we put on a marketing brochure

(25-07-2013, 09:37 AM)dzwm87 Wrote: ETF is the better alternative if one does not have the time or knowledge to invest.

Not everybody finds it a satisfaction to do due diligence.

I don't think etf is for one without time and knowledge.

The way I see it, etf will need oneself to manage the allocation, shifting money from one etf to another, understanding country or sector economies,doing all the balancing. All these are not just following books. Even if one just want to do what the books tell, one also need to have some time and knowledge.

(25-07-2013, 11:49 AM)NTL Wrote: I don't think etf is for one without time and knowledge.

The way I see it, etf will need oneself to manage the allocation, shifting money from one etf to another, understanding country or sector economies,doing all the balancing. All these are not just following books. Even if one just want to do what the books tell, one also need to have some time and knowledge.

Perhaps I didn't phrase it correctly or I sounded too non-conservative but what I meant was ETF can be a better investing alternative for those who can't afford the [u]same[\u] amount of time to do sufficient due diligence for stock picking.

Individual stock picking needs a luxury of time and you need to have a fair amount of ideas to allow diversification to favor your performance. Not everybody has that luxury else FM industry might have been extinct long ago.

In contrast, ETF offers an extent of diversification and we all know that the long-term return of stocks is positive. Sure, ETF is not exactly a risk-free investment and I agree you still need some due diligence but the extent should be far lesser than individual stock picking and given the mentioned circumstances and with fixed deposits offering such low returns, ETF should be a viable option to choose.