Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
You know, the reason why ETFs are doing better than the "experts" is because the "experts" are supposed to use fundamental analysis to analyze their stock picks.
Unfortunately, the central banks have been injecting liquidity into the market every time it dips.
How can one do fundamental analysis when there are no fundamentals? It doesn't mean ETFs are necessarily the smarter way to go because what like 96% of those stocks are pure garbage.
If the market drops some of them may NEVER recover, as illustrated in the following quote by Eric Peters, CIO of One River Asset Management.
“There is no such thing as price discovery in index investing.” And there will be no price discovery on the downside either. The stocks that have been blindly bought on the way up will be blindly sold. “When these markets do finally have a correction there will be no bid for many of these stocks.”
“The people who are indexing now are the same ones who were selling in 2009,” continued VICE, agitated. “I just spoke at a conference filled for wealth advisors from all the major players. They say the same thing - today’s buyers are not long-term investors.” They’re guys who put $1mm into index ETFs. “When they lose 6%-7% and decide to sell, who will be on the other side of those trades?” And the stocks that will be savaged worst will be the ones that lagged the indexes on the way up. “It reminds me of 2000, when people piled into the QQQs.”
“I don’t know when the next major crisis will hit, no one does,” admitted VICE. “But I do know that even in the next normal correction, the market’s losses will be amplified enormously by this move away from active management."
Here are the risks associated with ETF investing summarized:
Markets become more brittle, risky: "The shift towards passive funds has the potential to concentrate investments to a few large products. This concentration potentially increases systemic risk making markets more susceptible to the flows of a few large passive products."
Passive or index investing favours large caps as most equity indices are market cap weighted. "This could exacerbate the flow into large companies beyond to what is justified by fundamentals, creating potential misallocation of capital away from smaller companies. To the extent that these passive funds become even more dominant in the future, the risk of bubbles being formed in large companies, at the same time crowding out investments from smaller firms, would significantly increase."
The proliferation of index funds increases the size of stock inclusion flows. In turn, market moves around index constituent changes become more pronounced overpenalizing companies leaving the index and causing excessive gains to companies entering the index.
Crashes, when they happen, will be bigger and badder: "the shift towards passive funds tends to intensify following periods of strong market performance as active managers underperform in such periods of strong market performance. In turn, this shift exacerbates the market uptrend creating more protracted periods of low volatility and momentum. When markets eventually reverse, the correction becomes deeper and volatility rises as money flows away from passive funds back towards active managers who tend to outperform in periods of weak market performance."
Markets become less efficient: "if passive investing becomes too big, potentially crowding out skilled active managers also, market efficiency would start declining. In turn, this would present opportunities for active managers to extract arbitrage profits."
ytd IJR has been terrible up 3.40% . small caps ran out of steam .
ytd itot is up 9.09 .
ytd the insight growth model i use is up around 11%
growth and income model up 8.50%
income model which is a proxy for cash and bonds 3.50%
ytd my return is 8.38. looks like that is largely due to my ITOT and UPRO positions.
but i have adjusted my mentality and no longer think too much about the short term performance. that IJR is going to sit there for decades. its more about which ones i will add to over time.
To those who do better than the S&P 500 index year after year in your own stock picking, why don't you open a mutual fund?
By that logic, anyone who can bake a tasty cookie should go into business selling cookies. Oh yeah, that takes a lot of money to get started for commercial kitchen equipment, marketing, payroll, and there's competition from dozens of snack companies already in business.
You don't just go over to Kickstarter and open a mutual fund
ytd my return is 8.38. looks like that is largely due to my ITOT and UPRO positions.
but i have adjusted my mentality and no longer think too much about the short term performance. that IJR is going to sit there for decades. its more about which ones i will add to over time.
You are aware that upro is leveraged right? It's up 28% ytd
17% is so realistic. This certainly couldn't be a bubble. Not a chance.
The historical market risk premium is the difference between what an investor expects to make as a return on an equity portfolio and the risk-free rate of return. Over the last century, the historical market risk premium has averaged between 3.5% and 5.5%.
In planning for retirement scenarios I'm assuming an average return of 5.7%. That seems realistic over the long haul.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.