4 reasons ETF is a much better and simpler choice than stocks
returns with least effort and cost.
We have discussed earlier the case for ETFs, but a good idea can do with some reiteration. Let’s begin with what we typically believe when we construct a portfolio, and what we usually end up with.
Our investing journeys are peppered with stories of stupendous success with equity shares, either ours or somebody else’s. How a stock or fund grows to become magically huge in value is a story we cannot hear enough about. Most investors think equity investing is about selecting the right stock.
We also have market crashes and booms becoming news headlines. Whenever I hear the words ‘life-time high’, I cringe. Haven’t we heard it enough since the index crossed the 1,000 level? The equity markets will swing, causing steep changes in values on the way up and down.
However, investors tend to believe that somehow these turns can be predicted. They would ideally want to buy low and sell high, and no argument can stop that desire.
We call these two attributes selection and timing.
Selection refers to what one buys; timing refers to when one buys. Since market swings occur routinely, and liquidity or cash is needed for acting on one’s desire to buy, market action involves both buying and selling. There is a class of people that rapidly selects and times the market, buying and selling at high frequency.
These stock traders also attract enough investor attention.
What does all this focus on timing and selection result in? Investors end up with a long list of stocks in which they hold too little. When they buy, they are not sure if they have the right stock at the right time. Hence, they invest a small sum.
