The most common and popular investing advice I see is "just buy an index fund." That probably works for a lot of people who want to save for retirement and just forget about it. The whole idea of an ETF doesn't make sense to me, and is kind of boring. Here's why I think that:
If you're buying something like SPY, you're paying State Street Corp to buy a bunch of stocks of the "strongest companies." Please correct me if I'm wrong, but it is my understanding that the index automatically allocates capital to all of the s&p 500, in proportion to market caps. So theoretically, companies that are overvalued are being allocated more capital than companies that are not.
This whole system offers an explanation to how overvalued companies can just continue to become more overvalued while I sit here in confusion. I also wonder what will happen when everyone saving for retirement in these ETFs wants out at the same time. Savers better hope the market doesn't collapse near retirement or take adequate measures to prevent significant loss.
To me, buying an etf takes all the fun out of investing. It's challenging scrounging data and figuring out what companies are strong and here to stay and grow. I can see the appeal of an ETF though, being risk averse or not interested in stock picking, or just not having time for that. It is not without its downsides though.
Submitted January 01, 2018 at 09:01PM by InvestingLifeSavings http://ift.tt/2lxl7eQ
