Low expenses. High liquidity that allows trading throughout the day. Instant diversification.
What’s not to like about exchange traded funds (ETFs)?
Well, it is quite possible that the very characteristics that investors dream of can lead to lower performance.
The key culprit? Market timing.
Why is this so? In comparison to mutual funds, which can only be bought/sold once a day, ETFs does not have any such restrictions. To harness the true potential of ETFs, one has to overcome the urge to succumb to market timing behavior
Check out Betterment’s article for more in-depth reading.
ETFs – A Tool for Stock Market Gambling
In the worst case scenario, it basically turns ETFs into a tool for gambling in the stock market.
For example, if I feel strongly (aka wanna gamble) that Hong Kong’s Hang Seng Index is going to see a massive surge, I can simply purchase the Hang Seng Index ETF without any background knowledge on the stock market, nor its component stocks. The stock market is either going up or down, isn’t it?
Divine Retribution (世紀之戰) is a TV drama series broadcast by ATV in Hong Kong in September 2000. The series takes place in the future year of 2003, where the stock market has created financial crisis that caused complete chaos in the Asia pacific regions. Fast forward to time 23:30 in the video and enjoy!
More Than Index Investing
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