Are ETFs Safe In 2018?


#1

I have a significant portion of my portfolio allocated towards ETFs - are they safe?


#2

Are ETFs are marketed as safe products, however there are a few elements which make them unsettlingly dangerous…

Liquid
ETFs tracks an index, however they are also traded like stocks. Some ETFs are very thinly traded, meaning that only a small group of people buy and sell them…

This can be especially problematic when you want to sell your shares…and you can’t - no one will buy them.

Buying thinly traded anything is dangerous for this reason - this is no different for ETFs.

Cost Dollar Averaging
You can also get in to trouble when you allocate all your cash to an ETF and it falls in value.

Lets look at an example…

If you had invested all your cash in the S&P 500 index in 1929, you still would have suffered a 50% drawdown by 1939…

You can avoid this problem however, by cost dollar averaging:

Fees
ETFs are like mutual funds except they are traded on an index.

Whenever they are bought and sold this can incur fees. Over a significant amount of time, the fees can rack up and eat into the fund value…

The more fees are incurred, the more the ETF struggles to track the benchmark its assigned to…

The difficulty is that widely-traded ETFs are actually far safer in some respects to thinly traded ETFs…

So it can become a loose loose…

Personally, I would stay away from ETFs. I think they are dangerous beasts…


#3

Will take a look - cheers!