What the experts say

last updated 8 January 2015

Are ETFs dangerous?

The popularity of exchange-traded funds should be a point of pride for Vanguard founder John Bogle, said Jeff Sommer in The New York Times. Thirty-five years after he launched the first ETF, half of all index funds are ETFs, meaning they trade the way stocks do. But Bogle always argued against attempts by the average investor to beat the market; he liked that ETFs were indexed, which allowed for low fees and removed the predictable costs of mistimed stock trades. Watching how online trading has made it easy for small-time investors to buy or sell ETF shares on a whim, Bogle is horrified. “ETFs, in their way, are a dangerous weapon,” he says now. And indeed, the actual returns that ETF investors have experienced over the past five years have trailed those of the funds themselves by 3 percentage points.

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