In the world where everyone is trying to beat the S&P/ASX 200 (Index: ^AXJO)(ASX: XJO) with some 'bespoke' investing strategy — something massive is underway.
We scramble to find our way in and out of 'stocks'. Switching back and forth between blue chips like Commonwealth Bank of Australia (ASX: CBA) for income and speculative miners or pot stocks for an outside shot at glory.
But think about this…
The following investing statistic blows all that 'strategy' out of the water — and you need to pay attention to it.
Two months ago, Exchange Traded Funds (ETFs) held more than $US4,000,000,000,000 of people's investment dollars, according to ETFGI.
Before you try counting the zeros, it's $US4 trillion (with a 't') – $5.3 trillion in Australian dollars (A$).
That's up from $US3.4 trillion in May 2016.
For comparison, Australia's superannuation system held $2.3 trillion earlier this year, according to the Association of Superannuation Funds of Australia.
ETFs
ETFs have surged in popularity over the past two decades.
For example, as the millennium bug came and went (2000) ETFs held much less than $US 200 billion.
To my mind, the popularity of exchange traded funds comes back to three things:
- Simplicity – you can buy ETFs using your broker, just like shares; plus, the best ETFs are diversified.
- Cost – some global ETFs charge less than 0.1% per year to manage your money (in Australia, ETFs are a little more expensive).
- Performance – vanilla ETFs that track indices like the ASX 200 have outperformed 80% of professional investors over the long term.
Foolish Takeaway
Investing successfully has never been simpler thanks to the rise of ETFs. However, in my opinion, we cannot just buy them mindlessly because they are not risk-free. Google "etf flash crash". For example, as I have written previously, I wouldn't buy an ETF or index fund that tracks Australia's ASX 200 unless I had international exposure first.
