October 18, 2018

ETF Index Error 5: Good Index-Funds have good returns

Suppliers of ETFs like to advertise with the good returns that should be associated with this investment opportunity. And indeed, various ETFs are currently booming. However, this is often not because of their magical ability to make money, but rather because of the simple fact that many investors have bought ETFs and thus inflated their value. It’s only a matter of time until this bubble will burst.

In any case, funds are also subject to cyclical fluctuations. An ETF that has a good return today can have a bad one tomorrow. It has achieved its high return with stocks that are now expensive. What goes up must come down. Likewise, the price of expensive stocks will probably fall again.

In addition, ETFs contain large numbers of stocks. If an investor sells his ETF, it has to sell stocks, which takes longer because of their high number – this creates an additional loss in value that can be as high as 10%.

It is therefore recommended to evaluate stocks by yourself. That way, you neither have to know the strategy for funds – which is constantly changing anyway – nor rely on misleading returns.

You can find more on this topic in this interesting Bloomberg article.

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