The ETF industry has become a $4.6 trillion mammoth, but worries are growing about investors pouring into ETFs that simply buy an entire market, like SPY does with the S&P 500
“The way these indices work means that investors end up with their largest exposure to a stock just before its price falls” —Financial Times, October 10, 2017
But there is a clever way to use index funds to be a successful long-term ETF investor, while avoiding the pitfalls
Jared Dillian here with a message that you need to read if you’re invested in (or thinking about investing in) ETFs. It’s kind of a public service announcement.
First, I need to make one thing clear: ETFs are great for investors... if you know what you’re doing. I’ve been trading ETFs since 2004, first on Wall Street and now for my own account. I am pro-ETF.
But I got this message from a reader recently: “I have a friend who has lost most of his life savings in ETFs. The only thing keeping him out of poverty is a good company pension.”
This is a sobering example of what can go horribly wrong with ETFs. I don’t know the exact circumstances around that loss, but I do know that the industry has evolved at such a breakneck pace that there are several ways ETFs now present a danger to your money...
Leveraged ETFs, which can destroy your capital quicker than you can say “what’s a leveraged ETF?”
Being invested in overvalued stocks—that normally you wouldn’t touch with a ten-foot pole—because they’re one of the underlying holdings in your ETF
Thinking you’re diversified because you own a few different ETFs, without knowing the extent to which they overlap...
In fact, Martin Flanagan, CEO of Invesco—fourth-largest ETF provider—has said he was worried that:
“Too many people have created their total portfolios with cap-weighted indexes thinking they are safe and cheap. You are ending up with a disproportionate amount of your portfolio in the biggest stocks.”
So, yes, there are potential pitfalls around ETFs. When I see a message from a reader like this one...
“I have my whole retirement in ETFs but I really don't understand the risks vs. regular mutual funds or individual stock holdings.”
... I wince.
But I also worry that horror stories and scaremongering will send people running from ETFs. That would be wrong.
Because ETFs present one of the most exciting, profitable opportunities available to investors today.
They offer you more ways than ever to control your financial future.
I’ve been around ETFs since the early days, as head of ETF trading at Lehman Brothers. The thing most people don't realize about ETF traders is that you essentially touch every asset class: commodities, currencies, equities, rates, even credit. And some days, I traded as much as $1 billion in clients’ assets.
Nowadays, I write about ETFs regularly for outlets like Bloomberg View, Forbes, and Seeking Alpha. So I’ve had a ring-side seat to their breakneck evolution.
ETFs are one of the top five financial innovations of the last 100 years. Think about it... you can securitize anything, slap a ticker on it, and anyone can trade it. Unless you’re against freedom of choice, that is a great development.
If you’re a smart ETF investor, you can
Access markets you would otherwise be unable to...
Add diversification to your portfolio...
Or build a fully diversified ETF portfolio.
You can reduce what you would otherwise pay in fees...
And they’re tax efficient...
Plus, you can maximize your returns while also minimizing volatility.
Then there’s the fact that there are ETFs to suit any stage of your investing life. What’s your goal? Retirement? Funding your kids’ education? Just earning something for your money?
Me? Long term, I want to get a private jet to transport my cats. Or charter one. It’s a little outrageous, sure. But my point is that ETFs are a “fits all” tool. They can help people achieve their goals, no matter what those goals are.
So, if you want to use ETFs to get ahead... well, I want to help you do that.
My newest publication, ETF 20/20 focuses exclusively on helping you become a successful long-term ETF investor.
This service was in the works for a long time before I actually launched it last October. I have always wanted to help investors...
And my mix of Wall Street ETF trading experience and Main Street ETF analysis makes me pretty uniquely qualified to run an ETF publication for individual investors.
The vast majority of ETFs are passive, but “passive” is often mistakenly thought of as “neutral”. Being passive is an active choice...
And building a weighted, diversified portfolio made up entirely of ETFs is an active decision to invest in ETFs in a smart, highly targeted way.
In ETF 20/20, you have a full portfolio set up and waiting for you.
Now, given that one of the biggest complaints about ETFs is that it’s difficult for investors to figure out exactly what’s under the hood... here’s a brief look under the hood of how ETF 20/20 works:
Step 1. I take a big-picture view of what’s going on with economic trends, the political environment, monetary policy, and more. This allows me to spot macro trends and opportunities that are just beginning to lift off.
Step 2. I vet ETFs that could profit from that macro view by running them through our new, proprietary ETF Rating System. It tests the ETFs on a number of different criteria (including fees and liquidity) and lets the best one rise to the top.
In other words, it’s a system that takes away the hours and hours of research required to trawl through ETFs to find out whether they have any hidden “gotchas” like liquidity issues, high fees, and lots more.
Boiling the process down to two steps probably makes it seem effortless. But I decided not to bore you with the hours and hours of research I absorb when evaluating a macro viewpoint ... or the hours and hours of research that go into each ETF pick.
That’s how we built our portfolio, which is available to you the minute you subscribe to ETF 20/20. And it’s got carefully chosen ETFs—each designed to take advantage of big opportunities I’ve spotted including:
An ETF that would get you laughed off the set of CNBC...
An ETF that helps you take advantage of a region that I’m somewhere in-between “foaming at the mouth bullish” and “veins popping out of neck bullish” about...
An ETF that will save the portfolio if the stock market resolves itself lower...
So, once you decide to subscribe to ETF 20/20, you’re ready to hit the ground running.
With the ETF 20/20 portfolio, you don’t have to worry about “false diversification” a.k.a. a large amount of overlap in the underlying holdings of your ETFs.
You also don’t have to worry about liquidity issues or other potential risks, thanks to the ETF Rating System.
And you don’t have to worry about allocation... that’s my job.
Before I continue, here’s what you get with your ETF 20/20 subscription...
Instant access to a diversified portfolio: When you subscribe, you’ll immediately get access to my full portfolio—diversified and weighted according to my conviction and our risk tolerance.
Sharp macro analysis from an industry veteran: One of my main strengths is seeing the bigger picture, especially when others are not seeing it.
A tested ETF Rating System: Individual investors either need to spend hours researching, or take a gamble on an ETF and hope it’s not a mistake. The ETF Rating System does that hard work for you.
Actionable advice, month by month: Every month, you’ll get a full issue of ETF 20/20 delivered to your inbox: updating the portfolio, revealing my latest investment ideas, highlighting dangerous ETFs to avoid, and more.
Maximizing returns while also minimizing risk: Successful investing is not just about returns. It’s about minimizing volatility (and minimizing the risk that you’ll panic sell on a dip)
And here’s what you don’t get with ETF 20/20...
Speculation: We are not speculators, we are investors. You don’t need to worry about me recommending a leveraged ETF or something similarly dangerous.
Breaking news: There’s enough being written about ETFs in the news. We are going to stay focused on our long-term ideas... and which ETFs are likely to make us the most money based on those ideas.
Consensus thinking: I’m a contrarian—I view the herd with suspicion. This attitude has been the basis of some of the greatest trades I have ever made, and it is also part of ETF 20/20.
At this point, you’re probably wondering what ETF 20/20 is going to cost. Well, while other investors are paying hundreds or thousands of dollars for ETF research, you’ll be able to build a long-term, solid, profit-generating portfolio for a fraction of the price.
So here’s what’s going to happen.
The starter portfolio and available issues of ETF 20/20 are ready and waiting for you. You can access them immediately when you join and start building your new and far more effective ETF portfolio straight away.
Then, on the third Tuesday of every month, I’ll send you a fresh new issue of ETF 20/20, with macro ideas, actionable advice, portfolio updates, popular (or just plain crazy) ETFs to stay away from, and more. That’s 12 issues a year, and each and every one will be dedicated to improving the portfolio and helping you become a successful long-term ETF investor.
It gets better....
With ETF 20/20, I’m trying to do something very different from anything else in the industry.
And that extends to the price, too. I want you to join ETF 20/20 at a rate that is much lower than other newsletters, which is why you can subscribe for just $99 per year.
... and each issue is filled with invaluable advice.
Giving ETF 20/20 a try should be a no-brainer. And I do mean “giving it a try,” because:
I’m generally not a fan of money-back guarantees, but I’m very confident you’re going to be a big fan of ETF 20/20—I’m proud of the direction it’s going in.
So, here’s the money-back guarantee: You have a full 90 days to decide if ETF 20/20 is right for you. If you’re not 100% satisfied—for any reason—you can cancel within those 90 days and receive a full refund.
In those 90 days, you’ll get three issues, and access to the full portfolio. And if you don’t like ETF 20/20, I will give you your money back, no questions asked.
But if you want to be an ETF investor who knows what to do to get rich in a slow, deliberate, sustainable manner... then you won’t be asking for a refund.
How about it?
Editor, ETF 20/20
As money continues to pour into ETFs, now is the time to take action. If you want to build a solid, sustainable, diversified portfolio of ETFs to help secure your financial future, then ETF 20/20 is for you. If you want to learn from an ETF specialist and ex-trader about how to express macro views, how to pick the best ETFs for your needs, and how to avoid the potentially dangerous ETFs swirling around the markets... then ETF 20/20 is for you.
If you want to pour money into “the market” just because it’s going up, ETF 20/20 may not be for you... but it will help you see that there is a much better, safer way to put your money into ETFs.
Become a member of ETF 20/20 today and you’ll...
Go behind the curtain of ETF 20/20: In the first issue, I take you through the plan for ETF 20/20: our goals, how the portfolio is constructed, and my biggest macro ideas.
Get instant access to the portfolio: The portfolio is made up of ETFs that express my macro ideas. I also list the weightings in the portfolio as percentages—that means it’ll be easy to allocate whether you’re starting out with $500 or $50,000.
Receive my free weekly newsletter, The 10th Man: More than 200,000 subscribers get The 10th Man delivered to their inbox every Thursday. In The 10th Man, I deliver a sharp jolt of market commentary, designed to get you thinking about investing in a way you never have before.
Get each issue for just $8.25: For just $99 per year, I will help you invest in ETFs in a sustainable, safe, and profitable way.
Join risk-free: If you decide ETF 20/20 isn’t for you within 90 days... I’ll return your money, no questions asked.
If you are not 100% satisfied, simply cancel any time within 90 days and get a full refund. Your satisfaction is our primary concern.