ETFs in your 401(k)
Money managers and big companies are trying to swindle people into another huge mistake. Check out this article from Marketwatch on exchange traded funds.
For those of you that aren’t familiar with them, these are basically mutual funds that you “buy” like stocks. Their value goes up and down throughout the day like a stock and you pay a fee like you would to buy any other stock.
The great thing about ETFs is that they can track anything you want: gold, emerging markets, specific countries, products that start with the letter “Y”, etc.
Which is all good, but in their current incarnation they simply don’t have a place in your retirement account, no matter what this article says.
According to a guy that thinks it’s a good idea:
“We wanted to provide a product that was simple yet diversified, with modest fees,” Vulpis said. “We want to help investors with automaticand rebalancing, and an ETF was the best way to go about that.”
This is from the guy who would be making money off it. And boy would he. If you put this into your 401(k) or other retirement account, you would be paying a fee every time you buy into the ETF—something you do not do with mutual funds or index funds. Then you would have to pay the annual fees on top of that!
This is briefly touched on in the beginning of the article but kind of glossed over. The article itself is an example of what I like to call “surface knowledge.” It’s very common in advertising and especially when someone is trying to sell you on a product or service that is complicated to understand right off the bat.
More on surface knowledge at a later time.
Are ETFs useful? Yes, they allow you to take aim at exactly what you want to invest it.
Are ETFs useful in your retirement portfolio? No.