The editorial team at ETF Reference surveyed 57 ETF investing experts in search of the best tips for exchange-traded fund investors. The response we received was incredible. Our panel sent us hundreds of amazing tips! We winnowed that list down to 101, which are presented below. Whether you're a beginner or a veteran ETF investor, there are likely dozens of valuable tips in here for you. Edited by Jimmy Atkinson and Michael Johnston. Published December 1, 2015.
I am humbled and excited to be a part of such an elite group of experts. Obviously, some of our contributions were cut in the editorial process to make room for ideas from the other professionals. I thought it would be nice to share all of our answers, so below I have provided written Q&A interview I contributed to ETF Reference on behalf of Toroso. I urge all readers to click and read the top ideas from the other contributors, we may not agree with all the concepts, but the content is powerful.
What is the one piece of advice you'd give to an investor just starting to build a long-term portfolio?
When using ETFs, embrace the transparency of the structure. Most investors assume that the name of an ETF accurately describes the holdings. Due diligence is still required because many firms use different definitions, but all are required to disclose that information. For example VB Vanguard Small Cap is about 75% mid caps. This information is readily available but investors have to look for it.
What is one mistake you see investors make over and over?
Most investors put an overemphasis on expense ratio while ignoring bid/ask spread, securities lending, commission free availability and internal trading cost. The latter four components can have a much bigger effect on the cost of an ETF than a 10 basis point difference in the stated expense ratio.
In 20 years, _____.
In 20 years we will be able to invest in almost anything. I believe technology will allow investors liquid ways to express opinions about everything from weather, sports, and traffic to education and health. This type of investing will likely be multi-leg or conditional so that the opinions expressed will cover more than two outcomes.
Buy-and-hold investing is _____.
Buy-and-hold investing is rational; most investors are not. If investors can ignore the emotional response to volatility and only invest assets they can afford to lose, than buy and hold works. I believe in helping investors bifurcate their asset allocation between a theoretical time horizon (Buy and Hold) and a "life adjusted" time horizon (low Volatility and/or Tactical alternatives). The life adjusted time horizon accepts that some portion of the clients assets need to be relatively secure to help with life events like births, divorce, illness, black swans, etc…
One book I wish every investor would read is _____.
Fail Safe Investing from Harry Browne. Ok, I know some of his rhetoric is just ideology and the concepts are not terribly sophisticated. The value is in the simplistic way he sets the expectations for investing. The text clearly explains that investing is about not losing and the wins come from compounding and time. The book can be read in about an hour and all investors will come away with a realistic understanding of risk.
The one site / Twitter account / newsletter that I can't do without is _____.
Vixcentral.com. The visualization of the VIX curve is extremely helpful in my daily investing decisions.
The biggest misconception about investing via ETFs is_____.
Thinking bond ETFs will behave like bonds. Bonds have a set coupon and a set maturity. Bond ETFs follow an index, where the coupon can change and maturity is perpetual, but they are still subject to duration. Bond ETFs that lose principal due to an interest rate move may never regain that value. Bond ETFs are very useful but they are not a replacement for purchasing individual Bonds.
Over a 20-year time horizon, I'm bullish on _____.
Volatility linked ETPs. They are misunderstood, growing rapidly and create inefficiency that astute investors can profit from over the long term. Volatility, despite the marketing efforts of the CBOE, is not an asset class, but rather a result. The ability to profit from this result creates a truly uncorrelated investment.
Any other ETF-related investing tips or advice?
Don't be afraid to take calculated risk. The first big ETF trade I was ever a part ofwas a large purchase in BJK, the gaming ETF from Market Vectors, at my prior firm Horizon Kinetics. The ETF at the time had less than 10 million in AUM and we purchased over 50 million at the end of 2008. We committed days to understanding not only the investment but also the liquidity. There is nothing wrong with a low cost traditional beta ETF from Ishares, but the innovation and true opportunities come from the new issues. This summer, I took a similar calculated risk on VXUP during the August turmoil. This small trade, at a substantial discount to NAV, provided substantial protection to my portfolio. Intelligent security selection is what will separate investment advisors from roboadvisors.
Chief Investment Officer
Toroso Investments | New York, NY 10001