They Still Don’t Get It

July 26, 2006
By seadmin

Two weeks ago, we talked about an article written by that Mad Money man over at CNBC. He criticized the growing popularity and expansion of exchange-traded funds (ETFs). He seemed to delight in poking fun at the variety of new investment choices that have opened up to investors with the explosion of ETFs.

Well, it didn’t take long before I read another similar criticism of the many new ETF options available. This time it was a CBS MarketWatch piece titled, "For ETFs, too much of a good thing?"

The opening paragraph reads, "A rising chorus of observers says the proliferation of specialized exchange-traded funds across myriad market sectors and niches is confusing investors and pushing these popular financial products farther from their roots as low-cost, tax-efficient investments."

Really? Well, I guess if you are a broker or fund manager or someone who is otherwise threatened by investors having access to low-cost sector funds, then you might be part of that "rising chorus of observers" hostile to investor freedom.

Call me naïve, but I’ve always thought the individual investor is smart enough to see when he or she is being handed a load of bull. Now to be fair, the MarketWatch article wasn’t as one sided against ETFs as the Mad Money man’s piece. In fact, the MarketWatch article was careful to present an opposing view that the expansion of sector and inverse ETFs are actually a good thing. But the gist of the story was that ETFs have somehow become a victim of their own success, and because of their popularity, people now are buying things that they don’t really understand. "Spare me the condescension," I say.

Sure, you shouldn’t buy something unless you are totally familiar with it. However, that advice holds true for mutual funds, individual stocks, bonds, commodities and just about everything else we purchase in life. Hey, I’ll be the first one to tell you when not to buy something, even an ETF, but that doesn’t mean that having the choice available to you is a bad thing.

The point here is that the people out there criticizing all of these new ETF options still don’t get it. Investors are demanding more investment choices, particularly now that the major indexes have basically been flat for so many years. And where there is a demand, there will be an entrepreneur out there to make sure that demand is being met. This is nothing to fear. It’s just called capitalism in action.

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