Time to Buy ETFs and Head to the Beach

Abnormal Returns is written by an anonymous private investor, who’s clearly

torn today, after discovering that a diverse

global ETF portfolio can be put together with an overall expense ratio of

less than 0.15%, and the whole idea of investing one’s money oneself is becoming

less and less attractive.

The returns from a globally diversified all-ETF portfolio with an expense

ratio of 0.15% represents a high hurdle for investors of all stripes to overcome.

Said another way, this minuscule expense ratio is going to be difficult to

match for the average investor.

Whether one relies on actively managed mutual funds, managed accounts or your

own stock-picking prowess all of these strategies require additional expenses

in time and capital. Therefore today’s self-directed investor needs

to be all the more clear that their approach can reward them over and above

that available in a low-cost, indexed ETF world.

It’s really hard to argue that there’s any equity in managing one’s own money

any more, not when you can buy a handful of ETFs with tiny fees and just head

to the beach. And it’s really hard to see why anybody should buy a

hedge fund charging 2-and-20 when the alternative is a portfolio like this,

which charges 0.15-and-0. Maybe the hedge fund provides a little more hedge

in a down market – but as Yves Smith points

out today, hedge funds could actually be the worst hit if and when risk

aversion returns with a vengeance. Even if you have a strong stomach

and are happy to keep your assets in the fund, you still run the risk that your

fellow investors are going to start making a lot of redemptions, thereby massively

reducing the fund’s room for maneuver, and possibly precipitating the fund’s

outright shuttering.

Individual investors won’t go away overnight, of course. But as ETFs become

ever cheaper and broader, there’s increasingly little reason why an intelligent

investor should spend a lot of time and effort trying to outperform them.

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