Investment Strategies / Index Investing
No. of Recommendations: 4
An exchange-traded fund (ETF) is a type of investment vehicle that tracks a particular index, such as the S&P 500, or a specific commodity, such as gold. ETFs are traded on stock exchanges, like stocks, and they offer investors a convenient way to diversify their portfolio with a single investment.
One of the main benefits of Index investing is that it allows investors to easily diversify their portfolio without having to buy individual stocks or bonds. For example, an ETF that tracks the S&P 500 will hold a diverse range of stocks from different industries, reducing the risk of investing in just one or a few individual companies.
Another advantage of ETFs is their low cost. Most ETFs have low expense ratios, which means that they charge lower fees than actively managed mutual funds. This can make them an attractive option for investors who want to keep their investment costs low.
Yet another important advantage is that the investor can continually hold the same ETF, adding capital if possible, and not have to think about the subject of investing. This is especially applicable during a major market decline. If, instead, holding concentrated individual stocks, many investors panic and sell exactly at the this inopportune time. By contrast, if holding an ETF there may be far less pressure to sell (in part because one will not 'blame oneself', and in part because one will have less fear of one or two firms going out of business during the panic). Instead, by holding for the long-term, the ETF investor will then realise the return of the ETF - which will over time outperform the majority of hedge funds and mutual funds, owing to ETFs having a far lower management cost.
If Index investing requires little thought, once purchased, then perhaps the Shrewdom Index Investing board should then, in theory, not require many posts. Yet it can be interesting for investors to discuss the particular ETF products have the lowest cost and therefor most reliably track their target index, and to encourage one another to stay in for the long-term. It is also interesting to discuss the relative longer term expected CAGR (compound annual growth rate) over different indexes. For example, by simply changing from a market-cap weighted US stock index (such as SPY which tracks the S&P500) to an equal-weighted-index such as RSP, the investor will in the past, if held though their whole career, have realised a 1% to 2% long-term improvement in after-tax performance.
I encourage you to take the time to leave shrewd posts to this board to share you excellent ideas and research findings with others. Within the gates of Shrewdom, you'll observe a merry spirit, and many waiting for your most shrewd observations so that we can collectively grow and prosper.
- Manlobbi
No. of Recommendations: 2
If Index investing requires little thought, once purchased, then perhaps the Shrewdom Index Investing board should then, in theory, not require many posts.
Thanks for opening the board and the welcome message.
It's true that if someone buys and holds the index, we may have very short conversations here! But I hope we can do better than the index, or at least I am trying to.
I will explain what I mean in the next message, soon. I don't write often on boards, I find it hard to put some order in my thoughts. I blame the fact that English is not my first language but that's probably a bad excuse. Anyway, soon.
No. of Recommendations: 4
A further advantage to ETFs, at least to those of us in the US, is their tax advantage over a similar mutual fund. When a mutual fund changes it's holdings and creates capital gains, such as may happen when stocks get added or removed from an index, the holder of the mutual fund shares enjoy this taxable distribution by paying capital gains taxes to the IRS, even if those funds are then re-invested. Not so for an ETF which enjoys the ability to change it's portfolio without throwing off capital gains as a taxable event to the shareholder. You are only taxed on capital gains when you decide to sell shares, giving you better control over taxable income.
ETFs were not widely available when I first started investing, and my mutual funds from that time have done very well. So well that it would hurt to sell, from a tax POV, but the annual capital gains can trigger last minute gains of tens of thousands of dollars. Good problem to have, but it sure can complicate things like Roth Conversions and tax loss harvesting.
IP
No. of Recommendations: 3
I don't write often on boards, I find it hard to put some order in my thoughts.
It is hard to put some order to my thoughts, which is precisely why I post. I benefit most of all from my posts, since it forces some discipline of thought. Many times in trying to compose a question to the boards, it results in my finding the answer I need just by thinking things through. Same goes for constructing a spreadsheet.
I blame the fact that English is not my first language...
Definitely don't let that stop you. That too improves with use.
IP
