The Flaw with ETFs

[@andylist1573]

Great topic Tracey! The other downside of ETFs is that these massive companies are using the investor’s money to have a strong influence on the board and direction of the company without having any of their own ‘skin in the game’. I doubt they would really care if a company went bust due their own agenda causing it to fail in the long term. I’m certainly staying away from ETFs for this reason. Personal choice as it is…..

[@milisha98]

Some good points on diversification - and how diversified is it really. However, when looking at overall returns, that 'average' return from broad market ETFs have easily beaten our Dividend LICS (e.g. ARGO, AFIC, etc), and likewise our High Yield Dividend ETFs over the longer term. That said, there's plenty of research to avoid niche / thematic ETFs like the plague (e.g. 'clean energy' or 'robotics' ETFs). They tend to go up in elevators and down like lifts when as the hype bubbles burst. That said, I'm a Dividend Investor myself - even though I understand overall return may be a bit lower. It comes back to why I'm investing. Diversifying my income stream is more important for myself than a number on a statement (unrealized gains). Sure, the unrealized gain may be bigger, but it doesn't improve my life for the better unless I trade it all in.

[@thewoody1950]

Thanks Tracey. I have one ETF in my portfolio and 10 individual companies. Happy so far👍💜🇦🇺💜

[@hairypawter8475]

love your channel. I just read the bogleheads book so I was all in on ETF's but now Im reconsidering. 2 ETFs + 10 companies approach sounds far more optimal, you made a great case.

[@kiwilonewolf]

Tracking the market at a 9.5% pa return is still pretty good! We don't have to beat the market to get good returns.

[@fuz4623]

Would love to see you track your etf performance vs your single stock performance

[@billiexluxury]

Great video, I already knew most of that but great advice for others that are just learning. It’s true the etfs are so heavy in a couple of sectors so you really need to check the holdings before putting your money into them

[@wallysta]

Only 50% if people can beat the market average. Investing isnt my full time job so my assumption is I'm not one of them. Active management fees seem to make it impossible for me to pay someone to beat the market for me. 100% Index ETFs for me

[@Mark-pv1ef]

I think your assessment was fair and balanced. Thanks.

[@davidspar3384]

Hi Tracey, thank you for expressing your views on this topic. After giving your reasons as to why you inveat the way you do, have you compared your returns over your investing time period to most of the popular Indexes/ETF's to see how your returns have fared over them over a similar time period? It would be interesting to know whether the efforts of buying/tracking individual stocks have outperformed over the long run.. Out of curiosity, have you beaten ETF's like VTS or NDQ 100 over a 10yr period? The reason I ask, is because im in the process of liquidating out of some real estate and redeploying the funds back into the stock market. Although, Im thinking of splitting 80% into a few ETF's [US & AUS] and the other 20% into some higher paying australian dividend stocks. Thanks again for your time and great content 😊

[@helenasokolinski]

Thanks for posting this Tracey - I like what you're saying!

[@VideoAssociates]

i had all my portfolio in Coles at one stage, and I was making more in dividends than what I was in diversified ETFs

[@BeauMcKeeRecordings]

Thanks for the videos - it's much appreciated! Love your insight.

[@shaheedcassim798]

This is good info but each individual needs to consider their circumstances. I always say that the exit strategy is more important than the entrance. It's very easy to buy in it's a lot more difficult to know when and how to leave. For an instance you spoke about the overlap of stocks in multiple ETFs as being a thing of caution and yes you are correct but it could also be something that may help you. For example, in South Africa we probably have 5 different ETFs on the same platform all tracking the s&p and one might look at this and say why own all when one will do just fine but when you actively buying and not lump sum buying you get yourself in a little bit of a web because it's only considered capital gains if you owned it for over 4 years otherwise it's just income and you are taxed at your marginal tax rate and you forfeit your favorable tax exemption per year along with the lesser tax on capital gains. So it does makes sense to purchase the Etf from one investment company in one year and move on to a new investment company in the following years to make sure everything is older than 4 years.

[@bakuau]

@Tracey, you mention selling stocks as your needs change, could you share how you deal with capital gains tax? Does it influence what you sell?

[@robsalvv5853]

Fair video. There are pros and cons with ETF’s and they should be understood!

[@bunnobear]

Great video, I have a large % of ETF’s and are very happy with their growth, I have a couple of single stocks and like the idea of reducing tax through franking credits. Will have to crunch some numbers :)

[@carmasatch]

Such a valuable video Tracey. Thank-you!! The more I listen to you the more motivated I am to put a little more time and effort into careful stock selection over blanket ETF’s. Also….you should do a podcast. 😉

[@TraceyEdwards]

❤️

[@mattrt12]

Tracey, would you consider reinvesting the cash equivalent you get from franking credits to maximise the gain? If so how would you go about this? Those ETF's you mention are those thematic as the real known are household names in a number of communities.

[@isaachunt5799]

we have 100k usd invested. about 85k is in funds. i sleep better at night knowing our money is safe. i also have about 10k into nvidia. planning to give those to our son to buy a house when he's older.

[@mikerainham]

Most ETF’s are market capitalisation, but that tends to do well with the USA S&P 500 even if it is tech heavy. Niche ETF’s can be risky. I’ve held India tracking ETF’s for a time and that’s done very well. Plenty of bad ETF’s out there though so you have to do check things out same as any investment

[@thesolaraquarium]

fees are my biggest concern… it is why I rarely go ETF. I prefer zero fees other than the usual (broker etc). I would also prefer an ETF with fewer stocks. The ones with large number of holdings is like a super fund the way I see it. I already have one of those. new sub. i love all things shares. 5 industries or sectors is all i need for diversification. it works for me. I will go into more if I like them but dont need them.

[@mikeh7704]

I've been rejigging my portfolio recently for this very reason. Looking more closely at the ETFs showed a lot of overlap, so I'm scaling down to 2 ETFs and a few individual companies.

[@louisaparker]

One particular flaw of market cap weighted index ETF-s - you are always buying the winners, the stocks that have already gone up. That might be a good thing in the long run. But sometimes it's good to divert your money into stocks that are down at the moment.

[@barrys8503]

I thought it was a positive in that they acquire stocks that are moving north and dispose of stocks heading south (i.e a stock joins or exits the ASX300 or S&P500)i.e self-cleansing

[@robi19able]

There are pros and cons to individual stocks as well, which need to be understood.

Thanks Tracey! Great info as usual. 🌸

[@Tetus7]

I'm not really interested in Australian stocks. The best thing about ETFs for me is that I can benefit from international growth without having to go through the hassle of directly buying international stocks.

[@szm708]

Im really new to investing and wanted to understand how I should spread out my cash each month? If I deposit $500 a month for example into my brokerage account, how should I balance it out with all my stocks?

[@roxychic367]

VGS distribution was a big elephant in the room maybe a video on that?

[@rc2276]

What elephant. Vgs has 2% dividends and 7% growth pa. If you bought vgs for big dividends then you didn't do any research.

[@sunisasritongyom1526]

Great video as always, Tracey. I’d like to know how you manage your emotions/what’s on your mind when your stock goes down a lot. What makes you sell your stocks? ❤

[@TraceyEdwards]

I’ll sell if I’m no longer getting good dividends but mostly I don’t like selling. My preferred way is to hold forever if I can. It would depend on why the price fell. Company specific then maybe I’d care, but a general market fall I ignore and it doesn’t bother me. I’m pretty patient though so don’t mind waiting it out (as long as I’m still getting dividends). 🤍

[@tee1881]

I also prefer single stocks over ETFs. I have noticed them in recent years become quite gimickie (if thats a word), which turns me off or causes suspision. I'm like you where i like to have more control over what I'm holding and reap the franking credits. I spend many hours per week researching and following up on companies because trading for me has been a hobbie since high school and I feel ETFs detract from that aspect somewhat. T x

[@BenHeffernanArt]

Hi Tracey. Total newb here. So are you saying we may as well just buy the companies that are in the, let's say VAS fund ourselves? Rather than buying the ETF? I cant see the point if we can just buy these companies ourselves?

[@nathanmontgomery3795]

Any thoughts on factor based ETF’s like QUAL and tax implications of their internal rebalancing?

[@hungvphan121]

Also, ETFs provide distributions vs dividends from ordinary stocks. There are differences.

[@mattrt12]

Honest one last guest...how do you mange getting rid of a company that you no longer want, always been shy of CGT..or are you only selling -$

[@stevegeek]

I have a mix of individual stocks, ETFs and funds. Virtually all my stock picks have underperformed…my ETFs and funds have done OK. I’m no longer buying individual stocks.

[@janenes2782]

Great insight, thank you for the pros and cons, spending lots of time researching to make a decision, are they very similiar to index Funds?? Always enjoying your videos and the learning :)

[@dalamar2196]

Some of the businesses selected by etf's actually drag down the returns from the top 10 it holds

[@sanjitpoudel3544]

Which etf is best for long term investment ?

[@neilneil7705]

IVV or VTI

[@hman2912]

Do your own research.

[@mattrt12]

@@hman2912 NDQ and now good time to buy

[@isaachunt5799]

tech funds. mine are doing well.

[@anthonyyeh4055]

ndq

[@grazynawolska8160]

Im similar, 2 etfs, 1 mutual fund (i know, but i like this one) and rest is stocks.

[@mountainman9145]

As we have not had a major correction in the market since ETFs became popular what would happen if there was a run of selling in the more popular ETFs? E.g. Are fund managers allowed to close the exits should such a run happen?

[@milisha98]

I'm doubtful it can happen due to the investment landscape; Superannuation providers are among the biggest ETF holders, and every paycheck they're buying more. And they won't sell at once unless everyone retires at once. But granting your premise we can look at how the biggest stocks did in the past when they've had massive runs against them. Before the GFC, our banks dominated the ASX. And Commonwealth bank dropped from $60 to $26 during the GFC. But did half of Commonwealth's business really suddenly evaporate overnight? Of course not - they still had a very solid business. It just meant you were getting an absolute bargain if you bought - and indeed they're at $131 today. It's no different than going to the shop and finding your favourite breakfast cereal on special. A savvy investor will buy two boxes instead!

[@dazza9859]

ETF are taxed at 41 percent every 7 years in Ireland.Thats even if you have not sold them.

[@dalamar2196]

Good topic. The etf is diversified but if you only hold that one find and it goes under for some reason, you still lose everything. Another example is Black Rock pushing political decisions on the businesses it holds which destroys the businesses customer base.

[@annavy7945]

I like NDQ etf Tracey 🙂

[@boxman8957]

You buy ETFs for long-term capital gains discount in Australia. The more diversified the more money you put in so the risk is spread out. When you buy individual company stocks in Australia many have poor capital growth opportunities but good franking credits and higher dividend yields. I personally would be loading in on growth ETFs until I am ready to become financially independent, I would simply sell, pay the cap discount tax, and switch them over to individual ASX stocks like the Big Four banks, private credit and BDCs. E.g., load $100,000 AUD into IVV, IOO, NDQ, VGS, MOAT and VESG; let them compound for 20 years, sell, pay the CGT discount tax (aka only half the capital gains is taxed and do this in the new financial year when you retire), and retire/do other things that matter on a 6-9% yielding portfolio per year. I personally would be paying the ETF management fees just for that piece of mind just as you would with property managers with investment properties (which you can claim negative gearing against dividends).

[@alans4081]

Great video as always

[@Mark-wt7xl]

I was a bit disappointed this months ETFs only got 18 cents per share/ETFs,but other times are better.l keep adding to it each pay and buy lots of single shares. It's all fun😊

[@RosieNawojka]

Yeah, I looked at the ETFs and my super gets a better return. I'll let them do their job and have my fun buying single stocks.

[@VideoAssociates]

ETFs, the perfectly marketed product from the financial industry

[@hman2912]

I would never own an etf with Aussie traded stocks unless I wanted to own CBA and BHP. US or maybe all world etfs only.

[@wallysta]

You could say the same about only owning a US ETF if you wanted to own MSFT & AAPL

[@hman2912]

@@wallysta yeah true

[@shaybull4538]

Great perspective!

[@petertimp5416]

Thanks 😊

[@vijayaragavan440891]

ur correct.. well done

[@ravipeter-andrew1603]

Dead on. And thank you!

[@philip5899]

So one of the cons of the ETF is they are top heavy on the top companies with the smaller insignificant companies. Much better to hold individual companies that are the top companies 😂.

[@andyjames2082]

😊

[@cb7560]

Thanks for an interesting video. If you want to invest in the Australian share market, you are probably better off using a listed investment company (as they are closed ended companies, optimised for local tax, and have the ability to retain earnings and smooth dividends out from year to year - think what happened in 2008 and 2009, or 2020). Australian ETFs have to pay-out dividends, and the smaller ones may suffer issues from redemptions in a market crash. Where ETFs are best is as a means of gaining instant, low cost exposure to a non-Australian market - like the S&P 500. My own portfolio is 2 LICs and 3 ETFs focussed on different foreign markets (US, EU and Japan).

[@RavenRaven-se6lr]

Nothing like choice -

[@roseymalino9855]

Foolish supposed flaws for ETFs. These are all general issues with any stock investments. Many of the shortcomings you iterate can be more easily avoided with RTFs than many other offerings. Your statement that they;re easy and require no thinking is absurd. Anyone with that kind of thinking would be dead meat at the hands of a financial 'advisor' so still better off with ETFs.

[@jonathanmagic5633]

Warren Buffet says diversification is for those who don't know what they're doing.

[@Sylvan_dB]

And he recommends just putting your money into the S&P500 (because very few know what they are doing). How does that translate to the Aussie market?

[@meikala2114]

that is most of us