The Investor’s Carnival Game: Market Timing

December 08, 2016

ETFs Can Help & Hurt Market Timers

As one of the country’s largest managers of ETF portfolios, we are incredibly pleased with the progression of the ETF industry from when we started managing ETF portfolios in 2002. Each year, we are able to honestly state the industry has never been better.

Several aspects of ETFs, including the following five bullet points, have helped to reduce the need to make market-timing decisions:

  • Index investing
  • Transparency
  • Trading technology
  • Tax efficiency 
  • Lower fees

Earlier in the transition of the investment industry from higher-priced active management to index-based investments, successful investors had to make investment changes frequently. To be successful, you had to try and consistently pick top active managers. Since we believe most active managers don’t remain successful for long periods of time, you would have to change frequently.

Likewise, with low transparency in some actively managed portfolios, investors often had to change investments due to a misalignment in goals. Further, tax inefficiency and higher fees caused investors to make market-timing decisions.

With a plethora of what we feel are quality, low-cost, index-based and efficient ETFs, investors are not forced to constantly turn over their core holdings. ETFs should help investors to reduce the chances of making poor market-timing decisions.

However, choice and liquidity in ETFs has actually helped to feed some market-timing strategies. Those trying to time the market can use ETFs effectively to carry out their investments, although, we would support not blaming the tool for the outcome of the craftsmen.


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