The Money Compass: Where Your Money Went and How to Get It Back

Chapter 7

Exchange-Traded Funds

Thanks to a deal finalized in 2008, Chicago’s parking meters will be operated for the next 75 years by a group of investors put together by Morgan Stanley, including the sovereign wealth fund of Abu Dhabi.

—Thomas Frank, “The Real Chicago Way,” Wall Street Journal, October 8, 2009, http://online.wsj.com

By the time I have money to burn, my fire will have burnt out.

—Unknown

Is Mr. Bogle “Indexing” the Problem?

Are exchange-traded funds (ETFs) a good way to invest? Not if you ask Wall Street legend John Bogle, founder of the Vanguard Group.

“For all [their] popularity and allure, not to mention the disproportionate share of new money that’s being invested into ETFs, Bogle says the temptation to trade is their ultimate shortcoming,” reads a February 2011 Yahoo! Finance article expressing John Bogle’s view of ETF trading versus indexing.

The article goes on to state:

“The growth has been much more than I would have ever expected,” Bogle says of this fast-growing, $1.4 trillion dollar industry that still faces “a lot of misunderstanding.” Generally speaking, Bogle says most broad index ETFs are just fine, but he warns investors that individual sector and country funds are probably “too narrow for most.” As for leveraged and inverse ETFs, Bogle says this is where the “fruitcakes, nut cases, and lunatic fringe” can be found. “There’s just no possibility or any realistic way that you’re going to win that bet,” he says about leveraged ETFs. And finally, ...