How You Can Take Part in the ETF Revolution

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by: Doug Fabian

The exchange-traded fund (ETF) revolution is here, and I want my name to be synonymous with this rapid change.

That’s why, beginning with today’s issue of the formerly named Making Money Alert, the new name of this publication is Doug Fabian’s Weekly ETF Report.

While these changes may seem subtle to the casual reader, I assure you they are not. In fact, the changes here have big implications for every investor going forward.

You see, never before has there been as dramatic a change in the investing landscape as there has been with the explosion of ETFs. The morphing of investment pools into mutual funds midway through the 20th century is about the closest big change to the ETF revolution that I can think of, but that was many decades ago.

I am a firm believer that ETFs should be earnestly and completely embraced by all investors, hence my renewed focus on these investment tools in the Successful ETF Investing newsletter, as well as the newly named e-letter you’re reading now.

In support of the ETF revolution, I am going to use my position to convince you that ETFs are far better investment vehicles than mutual funds. Your money should be mostly invested in ETFs rather than mutual funds or individual stocks or bonds. You might say I am on a mission to persuade individual investors that ETFs are the best way to help preserve and build your wealth.

So let’s begin with a review of the top reasons why you must invest with ETFs:

  1. Cost. I think investors know that ETFs are cheap. The average cost is an expense ratio of just 0.33%, which is well below the average cost of a mutual fund. Over the course of your lifetime you will save thousands of dollars in management fees by using ETFs vs. mutual funds.
  2. Ease. ETFs are really easy to trade. Granted, there is a knowledge gap when it comes to buying and selling specific ETFs, but once we show you how, you’ll find it extremely easy to do.
  3. Simplicity. ETFs are a simple concept. They are index based. Most investors understand the concept of an index fund. Index investing is both wildly successful and popular, and it’s also much more transparent than mutual fund investing.
  4. Choice. This is perhaps my favorite feature of ETF investing, as the choices are enormous. Today there are more than 1,500 ETF choices. Of course, choice can be a blessing and a curse. However, with a little knowledge, choice becomes a very big advantage.
  5. Access. Access is about more then choices, it’s about being able to invest in ways that are not available to mutual fund investors. Some examples would be single-country ETFs or commodities ETFs.
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Finally, I think there is a knowledge gap here that many investors have to overcome with respect to ETFs before they can move out of mutual funds and into these superior investment vehicles. That is why, in this e-letter, we will be devoting a lot of space to helping you learn the ins and outs of ETF investing, both from a “how to” perspective, as well as a market knowledge perspective. Doing so will help eliminate any knowledge gap to allow you to be a confident soldier in the ETF revolution.

The Fed Stays on the Taper Course

The Fed stayed on course with respect to its “taper” of quantitative easing today, announcing another $10 billion reduction in its current bond-buying program. According to the Federal Open Market Committee’s (FOMC) statement:

“Beginning in July, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $15 billion per month rather than $20 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $20 billion per month rather than $25 billion per month.”

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The decision came in as expected. Therefore, there wasn’t much of a reaction initially in either the stock market or the bond markets. Interest rates continue to remain stable. Despite a bit of a bounce off of the May lows, the yield on the 10-year Treasury note remains well below its 200-day moving average.

Basically, it seems like more of the same from the Fed — and when it comes to markets, the fewer surprises the better.

On the Virtue of Change

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“To improve is to change; to be perfect is to change often.”

–Winston Churchill

Given all of the changes we’ve made to our various products of late, I thought it would be fitting to reflect here on the virtue of change with a little help from one of the wisest chaps who ever lived, the great Winston Churchill.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about why fear has disappeared from the markets. I also invite you to comment in the space provided below.

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