ETF’s, or Exchange Traded Funds, are taking market share from traditional Mutual Funds. In just ten short years they have come to dominate the scene for new investors who are entering the market for the first time.
They’ve grown so quickly that traditional fund families like Fidelity and Vanguard are running scared. Realizing that they can’t compete with the advantages that ETFs offer, such as low costs and the ability to get in and out on a moment’s notice, the mutual fund behemoths have decided to join the party. Many of the most recent ETFs are sponsored by traditional mutual fund firms. That alone should tell you that ETFs are a legitimate alternative to the older, slower-moving mutual funds that your father used to invest in.
As ETFs have become more popular with investors, there is a new problem that has arisen. Are there too many ETFs out there? How do you decide, for example, which of the dozen or so Large Cap Growth ETFs to pick? Are they all the same? If you search the web for information about how to choose, what you’ll find is typical of the financial services information infrastructure – too much information to be useful for the average investor. Everybody, it seems, has a list of the ‘best’ ETF for each segment of the market. But how do you know which list is objective and which list is just a marketing piece?
We spent several months and hundreds of hours researching the ETF universe with one goal in mind – to come up with a pure, objective list of the best ETFs for the average investor to use in their portfolios. We have an advantage over most of the other list-makers. We can afford to be unbiased in our efforts because we have no financial incentive to favor one ETF over any others. We take no advertising dollars from the companies who sponsor ETFs, we don’t sell them to our clients, and we don’t make specific recommendations of which ones to buy. What we do is teach our clients how to decide for themselves which ETF is best for the specific goal they’re trying to achieve. In some cases we’ll prepare a short list of 3 or 4 ETFs for them to choose from, but the final decision is always left to the client.
Below is our list of the best ETFs for each major and minor category of investing. Our list is based on low cost, good liquidity (the number of shares that are traded every day), and efficiency (how well the ETF tracks the index or industry it’s supposed to represent). As always, comments and questions are welcomed. Send them to us at
info@zeninvestor.org
Best general stock fund: VTI Vanguard Total Stock Market Index
Best general bond fund: BND Vanguard Total Bond Market
Best international stock fund: EFA iShares MSCI EAFE Index
Best emerging market stock fund: EEM iShares MSCI Emerging Markets Index
Best U.S. Real Estate fund: VNQ Vanguard REIT Index
Best International Real Estate fund: RWX SPDR Dow Jones Intl Real Estate
Best general commodity fund: GCC GreenHaven Continuous Commodity Index
Best gold and silver fund: CEF Central Fund of Canada (this is actually a CEF, not an ETF)
This brief list will get you started thinking about and comparing ETFs as alternatives to your stodgy old mutual funds. Our next article in this series will add more choices, both new asset categories and sub-categories within the main ones listed above.