Review
“This book should go a long way to helping not just investors but top-notch financial professionals…” (Research Magazine)
Praise for ETFs For The Long Run “As the title of the book suggests, ETFs are going to be an increasingly important reality for a broad class of investors in coming years. This book offers the reader real understanding of this growing force in our economic lives.” —Robert J. Shiller, Arthur M. Okun Professor of Economics …
Buy ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing at Amazon
It really annoys me when a popular columnist/”qualified” expert, at least until very recently (Jeremy Siegel, for instance), is still spouting in 2009 the same old bromides that have cost many people over 50% of their savings in the last 8 months. Buy and hold, diversify, use DRIP plans, avoid load funds, buy anything with a 5-star rating from Morningstar. And, above all else, keep buying stocks. If you put the money in treasuries or bonds or the money market, even in your senior years–or so goes the familiar tale–you’ll soon lose out to inflation. Rethink that: the past 6-8 months have demonstrated that you’re more likely to have your head handed back to you.
Look at the ten-year averages of some of the most aggressive (“especially” them) “growth” funds, even the highly-regarded ones, and don’t be surprised to see that they’ve been trounced by bonds, the money market, CDs, even a plain old savings account. Or pay the minimum $2500 to get into some marquee stock-picker’s mutual fund, and try to pretend after six months, when your investment is worth $600 while the fund is still sporting 5 stars, that it’ll come back if you just hang on.
The upshot of all this? Be wary of mutual funds, passive investing, buy and hold strategies. This approach simply hasn’t been working, and if Japan’s “lost decade” (make that 2) is any model, we could be at a stalemate for many years to come. As a result, the name of the game has suddenly become nimbleness, small and strategic investing, resisting the urge to hit home runs. But you don’t have to be an expert in futures and derivatives or become a “day trader” in order to employ such a strategy. This book explains why ETF’s are the best solution, and not just for the day trader (who has the time or, for that matter, the “conscience” to spend their lives trading stocks at a video terminal for 8, 10, 12 and more hours a day?) but for the long-term investor.
The book is written for both the neophyte–someone who hasn’t even invested in stocks let alone ETFs–as well as the experienced investor, or someone unfamiliar with the the history, structure, and future of these new investment vehicles. It’s a thorough, detailed, edifying read. There may be more information here than the average person (moi, for instance) can immediately digest, but if anything has taught us the painful consequences of hastily sacking your money away in a handful of funds and forgetting about it, the past 8 months certainly have.
The author not only provides a fascinating, “human” narrative of ETFs coming to market family by family, but includes the “conflict” essential to a good story. For example, Rob Arnett’s introduction of “fundamental” indexing to fund portfolios becomes a shot across the bow to the “capital-weighted” indexing of John Bogle at Vanguard–a painless way for the reader to learn about controversial “efficient market” theory.
Of course, most readers will want, above all, lots of practical advice. The author provides model portfolios and demystifies these relatively new investment vehicles. Following Carrel’s advice and examples, any reader will be able to set up a strong portfolio and, with minimal but regular attention, stay on course toward maximizing (or preserving) profits while minimizing risk. More importantly, the investor will be able to realize not merely diversification but a sense of empowerment and control that is lacking in most mutual fund transactions. Finally, as the author explains, you’re more likely to save money on sales charges, transaction fees, and tax consequences. (Many people still don’t realize how inexpensive it is these days to trade a stock. When I discovered the market circa 1990, stock trades were fifty bucks and more per transaction. Even today, brokerages charge similar fees for trading mutual funds that aren’t considered house funds. ETFs, on the other hand, are bought and sold just like stocks–i.e. ten bucks or even less per transaction.)
This is one of the most recent studies you’ll find on the subject. It understandably doesn’t include developments of the last 2-3 months–many of which are mere gimmicks that don’t belong in an investor’s portfolio anyway, such as bear funds that triple the movement of the market in inverse order (yet for some reason, guessing right with these bear “ETFs on steroids” will not triple the investor’s wealth). And in December many investors discovered that some ETFs are not necessarily as tax-efficient as they had promoted themselves to be. The author does clarify most of these matters and offers sound advice about the solid funds, the ones that the “investor” rather than the “gambler” should concerned with. (I think that it’s safe to say that many of the gimmicky new products of the last couple of months are strictly for professional traders, not for investors or hedgers. If you like the psychological comfort of a hedge, short ETFs provide the opportunity. But in the long run, simply sticking with a long position and buying more on the dips could have the same balancing effect.)