The rise of Exchange Traded Funds (ETFs) has done wonders for the average investor. In my opinion, the invention of the ETF should probably be heralded as one of the best innovations in terms of financial products in recent decades.
The reality is that too many blue-collar, working-class people have been taken for a ride over the years via the fees charged by fund managers in the past.
Most ETFs now offer a widely diversified portfolio of companies at a fee of less than 1%. In many cases, the fee is only a few basis points. Some trading platforms have now begun offering ETFs and/or trades for free.
Such advancements have put the financial advisory business under stress, especially considering the reality that most mutual funds and high fee hedge funds have not beat indices consistently over time.
The fact that fees are near zero, or actually zero, doesn’t mean these funds should be purchased with impunity. Understanding the holdings of these ETFs and their respective weightings is important to truly understanding the risk profile of one’s holdings.
Most ETFs today, even index ETFs, have a heavy concentration of a few high market capitalization companies. Knowing which companies make up a high percentage of a given ETF should be given extra scrutiny when considering whether or not an investment in a given ETF should be made.
Invest wisely, my friends.
