John Bogle, founder of The Vanguard Group Inc., recommends low-cost, passive index mutual funds as the best way to invest, but that recommendation does not extend to exchange traded funds. Exchange traded funds are good for trading, , according to Mr. Bogle, but trading is not good for investors. Trading and investing are not the same.
“There’s no question that ETFs are the greatest trading innovation of the 21st century. But the question is, ‘Are they the greatest investment innovation?’ and the answer is ‘no,'” Mr. Bogle was quoted as saying (“Bogle: ETFs great for trading, not so great for investors,” InvestmentNews). An advertisement for the SPDR S&P 500 ETF touts the ability to trade the S&P 500 throughout the day. “Who the hell wants to do that,” exclaimed Mr. Bogle. Not investors, only traders.
It is has long been conventional wisdom that trying to time the market ? including trading ETFs intraday ? is impossible over time. Would-be timers often get whipsawed. A lot of trading by individuals is driven by emotion. Investors end up buying at euphoric highs and panic selling near bottoms ? not a recipe for success.
In the past, Mr. Bogle has crtiticized ETF providers for their bewildering array of exotic products, which he says makes it even more difficult for investors to pick the right fund. “There’s something like 2,000 ETFs now,” Mr. Bogle said. “That’s almost as many stocks as there are.” For example, the world’s largest ETF provider, “BlackRock is just making a muddy pool muddier,” Bogle said.
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