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I kind of get the sense that perhaps some people are upvoting this article because of the title and they just agree with the sentiment. Which is fine but I don

• vchynarov 11y ago
  Generally I agree with you. However I can provide a personal counter-example. I am a student with a modest sum saved away (with great help from my parents) in an index tracking mutual fund. Due to the way my bank offers investment packages, I am far below the minimum portfolio balance required for significantly less fees. However, I can have a mutual fund in a different type of account offering which is essentially the same as an identical ETF. This is (Canadian) RBC - Direct Investing. In addition this particular fund also significantly outperformed other ETFs during 2008-09.
  • aianus 11y ago
    Questrade in Canada lets you buy ETFs for free, as little as one share at a time. You only pay when you sell ($0.01 a share, minimum $5 a trade). Anything sold by the big banks in Canada is almost always a ridiculous rip-off. Even better might be something like Wealthsimple. (Not affiliated with either company except as a customer)
    • mabbo 11y ago
      Friend of mine work over at WealthSimple. Glad to hear people like it.
  • deleted 11y ago
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  • thepangolino 11y ago
    Outperforming the market in bear years is the main reason in keep some of my money in managed funds.
• slg 11y ago
  > I can't think of a single reason that anyone should have any money in an actively managed mutual fund. It will depend on your bank, but anecdotally it seems commission free mutual funds are more common than commission free ETFs. If you are the type who wants to invest X% of every paycheck (i.e. making multiple trades a month), are only investing a small amount of money, or are only investing for the short to medium term, you are likely better off with the the higher fee and lower commission. Retirement savings tend to be none of those three categories, so ETFs are almost universally better in that regard.
  • aianus 11y ago
    > If you are the type who wants to invest X% of every paycheck (i.e. making multiple trades a month), are only investing a small amount of money, or are only investing for the short to medium term, you are likely better off with the the higher fee and lower commission. Roboadvisors like Wealthfront solve this problem more elegantly and at lower cost.
  • newjersey 11y ago
    My understanding is there is no fee when putting in money towards your Vanguard Index Fund. I don't think they charge any extra money per transaction. You probably get screwed a little based on how quickly prices update and what price you pay per share (I don't know if you do but I'm just guessing). However, as people who don't have a day job in buying and selling financial instruments, I think we are probably better off buying and holding. And hoping and praying the US economy and the world economy will overall grow in the next fifty or so years. https://personal.vanguard.com/us/whatweoffer/stocksbondscds/feescommissions https://personal.vanguard.com/us/whatweoffer/stocksbondscds/...
• jackcosgrove 11y ago
  "As someone who is on the side of actively managing money, I see this as a strong positive. The more passive money there is sloshing around the more arb opportunities there are!" In the medium term active and passive management will eventually reach equilibrium. Passive funds cannot perform price discovery as well and rely on active funds to do this. However the ability of computers to discover prices will eventually exceed that of humans not possessing insider knowledge. My money is, literally, with the computers.
  • meric 11y ago
    The problem of market pricing in the economy is NP-hard. It's means as a human if you're good you'll always have a chance. At the very least you can pull moves like "1. buy a big stake in the company. 2. Kick out the directors. 3. Do a better job". which computers will not be able to do for quite a while.
    • deleted 11y ago
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    • javajosh 11y ago
      >The problem of market pricing in the economy is NP-hard. Is it? I mean, I see how it's reflexive (and so chaotic) but NP-hard is the halting problem: given a program and it's input, decide if it halts. E.g. what is the input to your market function? It's like asking if the world halts. The thing about all complexity analysis is that it ignores input/output.
      • Scarblac 11y ago
        NP-hard is the class of problems that are at least as hard as NP. The halting problem is in there, but it isn't decidable _at all_. Just that its NP-hard doesn't mean it's as hard as the halting problem, it could be easily decidable in exponential time. Complexity analysis is all about the size of the input, it doesn't ignore it.
    • pjc50 11y ago
• cm2187 11y ago
  ETF have one big problem, you end up with a critical mass of investors who all apply the same know rule based investment strategy. That means that they will be arbitraged by hedge funds (like when a stock is expected to enter the S&P, you know there is a huge mass of dumb buyers who will buy it then whatever the price). And you are creating potentially liquidity issues. You need people with various trading strategies for the market to remain liquid. I am not against ETF, in fact that's what I would use, but it comes with its own problems.
  • eru 11y ago
    If you have enough market makers trying to arbitrage you, they compete, so you can buy the stock that enters the S&P 500 for a reasonable price.
    • cm2187 11y ago
      The other way round, the more they arbitrage me, the more I buy dear (they front run me and push the price up).
      • yellowstuff 11y ago
        I think eru is right. Here's my argument: Tomorrow I will buy 10 shares of XYZ at any price, and everyone knows this. XYZ is worth $100/share and today that is the price. If one other person in the world owns XYZ shares they can sell it to me for $200,$300, whatever price they name. If 2 people own shares, there will be competition, and I'll buy at the cheapest price available. If 1000 people own shares I will still have to pay more then $100, but if there is true competition on price then I should only pay slightly over $100.
        • cm2187 11y ago
          That's not the way I understand the arbitrage, you are assuming hedge funds have no impact on prices. Say company X is getting bigger, and pretty much qualifies to get into the S&P500 at the next revision of the index, it currently trades around 100. When it gets into the S&P500 all the ETF buyers will buy this stock, that will push the price up to 110. Some of them will buy it at 100, some will buy it at 110 and some anywhere in the middle. Now a bunch of hedge funds anticipate the ETF will do that and start buying it ahead of the stock going to the index. The price of that stock will rise to 102, 105, perhaps 107 if you have lots of people doing this arbitrage. When the ETFs buyers pile in, they will be picking up the stock somewhere between 105 and 110, not 100 and 110. Now one can argue this is the problem of the bank maintaining the ETF, because as far as the ETF investors are concerned, they own something that tracks the index, if it costs more to replicate the index, it is not their problem. But the way I see it is that the new stock will enter the index at an inflated price, and the price will converge again to the fair value when all the buying is done (instead of the price going up after the stock joins the index and converge again). That means that the ETF investors will have a lower performance than what they would get if no one was arbitraging them.
• jensen123 11y ago
  > I can't think of a single reason that anyone should have any money in an actively managed mutual fund. I kinda agree with you. However, theoretically, I would have been more than happy to put my money in an actively managed fund IF that fund was managed by someone with a very high intelligence and who was able to sit still. By sitting still, I mean not buying and selling all the time. Often, it's far more profitable to sit on shares for many years, rather than buy and sell all the time. But I guess those fund managers are expected to come into some office every day at least from 9 to 5, regardless of whether there is anything to do. Also, they probably have co-workers and bosses who ask them what they're doing. Maybe it would be kinda boring to answer "nothing" every day for like 2 years in a row.
  • adrianN 11y ago
    If the fund manager mostly does nothing, what value does he provide?
    • tinkerrr 11y ago
      Picking the initial stocks? A company like Berkshire Hathaway run by Warren Buffet has a very low churn over the years, especially in their larger positions. The company has been sitting on 400,000,000 shares of Coca-Cola since the late 80s, never selling a single share.
    • kolinko 11y ago
      Guards standing at the gate also do nothing 99% of the time. Good sysadmins as well.
      • HCIdivision17 11y ago
        It is such a cool principle. I think it can be extended to all manner of fields. As a process engineer, I am convinced that the best machine operators are the ones actively doing nothing. The active bit is key: they must be alert, watchful, understanding, and for-God's-sake don't push nothing unless you need to. Somewhere along the way operators think that if they don't push a button every fifteen minutes they aren't earning their pay (I blame bad management and production pressure). So when in doubt, look busy. It has awful and confusing effects on processes, leading to long term hard-to-diagnose noise in otherwise stable systems. I think the same principle applies here. We want vigilant, patient, and wise did managers. Not just super active and excitable ones.
• panglott 11y ago
  There are a huge, huge number of people that have 401ks and IRAs that only offer a small number of actively managed mutual funds, many of which have high fees, and there is little consumer education about the high of these fees. If this rule change leads more 401ks to offer ETFs and some education about there value, it will make a big difference.
• ttcbj 11y ago
  Is the statement "more passive money implies more arbitrage opportunities" actually true? 1. I think passive money is generally not taking any position on whether an asset is over or under priced, and as a class tends to be very inactive. I doubt it either increases or decreases arb that much. 2. I think what would increase arb opportunities would be: A. A critical mass of misinformed active managers B. So few active managers that the market is gameable However, as the number of active managers decreases, one would think that the misinformed ones would go first (A), and that (B) won't be a linear progression, but a sudden tipping point at a very low level of active management. Actually, I sort of think the final statement is reversed. As the number of active managers declines, and the average active manager becomes more competent, it will become harder for the active managers to find profitable arbitrage opportunities.