Ten Questions and Answers on ETFs and Other Topics

I was asked to participate with 57 other bloggers in a post that was entitled 101 ETF Investing Tips.  It’s a pretty good article, and I felt the tips numbered 2, 15, 18, 23, 29, 35, 44, 48, 53, 68, 85, 96, and 98 were particularly good, while 10, 39, 40, 45, 65, 67, 74, 77, 80, and 88 should have been omitted.  The rest were okay.

One consensus finding was that Abnormal Returns was a “go to” site on the internet for finance.  I think so too.

Below were the answers that I gave to the questions.  I hope you enjoy them.

1) What is the one piece of advice you’d give to an investor just starting to build a long-term portfolio?

You need to have reasonable goals.  You also have to have enough investing knowledge to know whether advice that you receive is reasonable.  Finally, when you have a reasonable overall plan, you need to stick with it.

2) What is one mistake you see investors make over and over?

They think investment markets are magic. They don’t save/invest anywhere near enough, and they think that somehow magically the markets will bail out their woeful lack of planning.  They also panic and get greedy at the wrong times.

3) In 20 years, _____. (this can be a prediction about anything — investing-related or otherwise)

In 20 years, most long-term public entitlement and private employee benefit schemes that promised fixed payments/reimbursement will be scaled back dramatically, and most retirees will be very disappointed.  The investment math doesn’t work here – if anything, the politicians were more prone to magical thinking than naïve investors.

4) Buy-and-hold investing is _____.

Buy-and-hold investing is the second-best strategy that average people can apply to markets, if done with sufficient diversification. It is a simple strategy, available to everyone, and it generally beats the performance of average investors who buy and sell out of greed and panic.

5) One book I wish every investor would read is _____. (note that non-investing books are OK!)

One book I wish every investor would read is the Bible. The Bible eliminates magical thinking, commends hard work and saving, and tells people that their treasure should be in Heaven, and not on Earth.  If you are placing your future hope in a worry-free, well-off retirement, the odds are high that you will be disappointed.  But if you trust in Jesus, He will never leave you nor forsake you.

6) The one site / Twitter account / newsletter that I can’t do without is _____.

Abnormal Returns provides the best summary of the top writing on finance and investing every day.  There is no better place to get your information each day, and it comes from a wide array of sources that you could not find on your own.  Credit Tadas Viskanta for his excellent work.

7) The biggest misconception about investing via ETFs is_____.

The biggest misconception about investing via ETFs is that they are all created equal.  They have different expenses and structures, some of which harm their investors.  Simplicity is best – read my article, “The Good ETF” for more.

8 ) Over a 20-year time horizon, I’m bullish on _____. (this can be an asset class, fund, technology, person — anything really!)

Over 20 years, I am bullish on stocks, America, and emerging markets.  Of the developed nations, America has the best combination of attributes to thrive.  The emerging markets offer the best possibility of significant growth.  Stocks may have a rough time in the next five years, but in an environment where demographic and technological change is favoring corporate profits, stocks will do better than other asset classes over 20 years.

9) The one site / Twitter account / newsletter that I can’t do without is _____.

Since you asked twice, the Aleph Blog is one of the best investing blogs on the internet, together with its Twitter feed.  It has written about most of the hard questions on investing in a relatively simple way, and is not generally marketing services to readers.  For the simple stuff, go to the personal finance category at the blog.

10) Any other ETF-related investing tips or advice?

For a fuller view of my ETF-related advice, go to Aleph Blog, and read here.  Briefly, be careful with any ETF that is esoteric, or that you can’t draw a simple diagram to explain how it works.  Also realize that traders of ETFs tend to do worse than those that buy and hold.