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Paul Farrell’s article in the Wall Street Journal suggests that no-load index funds are better than ETFs in a lazy portfolio (also available at MarketWatch.com). His main arguments against ETFs are broker’s commissions and the superior performance of Vanguard funds over their respective ETFs. While, index funds are a great choice for many investors, there are definite advantages to ETFs. The performance superiority of index funds is also questionable.
Bottom line: Asset-allocation and periodic rebalancing are the keys to superior portfolio results for most investors. Index mutual funds are a good choice for some (e.g. someone investing small amounts of money periodically) and ETFs for others (e.g. foreign investors like me!) to achieve that goal.
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2 responses so far ↓
1 JLP // Feb 7, 2005 at 12:09 am
William Bernstein says the same thing against ETFs on his website (http://www.efficientfrontier.com/ef/901/shootout.htm).
I’m going to have to investigate this further.
JLP
http://AllThingsFinancial.blogspot.com
2 Metasure // Oct 14, 2008 at 12:24 am
I think index funds and ETFs are a waste. You can construct your own index and save heaps of cash in savings because you don’t pay management fees. Brokerage fees amortized over the long run give costs that are virtually zero. Every time you buy, simply randomly choose a stock from the index and when you buy randomly you weight by market cap so you are more likely to choose the large caps.
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