Star Wars fans know that the Force “binds the galaxy together.” ETFs have become quite an investment force over the last several years; and during that time, Vanguard has developed quite a few thought leadership pieces on ETFs. It occurred to me that it would be helpful to write a short blog putting these pieces in proper context. While this blog probably won’t bind the galaxy together, I think it will help properly bind together these various pieces of ETF knowledge.
Nowadays, there’s plenty of buzz (some good, some not-so-good) surrounding ETFs. For advisors new to ETFs, I suggest starting with Exchange-traded funds: Clarity amid the clutter. Of course, even if you have experience with ETFs, sometimes we need to unlearn what we have learned.
After you have cleared your mind (from the clutter), I recommend learning how ETFs fit into the investment galaxy alongside mutual funds. I think this is particularly helpful because investors always ask me what they should consider when deciding between the two. Choosing between ETFs and mutual funds: Strategy, then structure can help.
There seems to be no shortage of closely held truths that explain the popularity of ETFs. For many investors, these so-called truths can depend on a certain point of view. Vanguard’s point of view is informed by the quantitative analysis of purchase decisions by a group of investors. It shows that the decision to buy a Vanguard ETF® over its equivalent mutual fund share class is driven by a group of factors.
A knowledge base you have built. Portfolio strategy with ETFs you can develop. Much as Yoda uses passive voice to convey active ideas, Active indexing: Being “passive-aggressive” with ETFs discusses the potential benefits and challenges of using passive ETFs to build active strategies.
Ultimately, investors need to actually implement their investment strategies. Just as a Jedi emphasizes control and patience, our work in ‘Best practices’ for ETF trading: Seven rules of the road emphasizes (price) control and patience in trading to help reduce implementation risks of ETFs and their transaction costs.
May the Force of ETFs be with you.
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