In all seriousness, however, it does seem like there is a certain inevitability in the ETF market right now.
The world we live in today isn’t a dark one of dying capital markets, whatever the pundits say. It’s actually a world of a kind of ETF Manifest Destiny, where it’s written on tablets somewhere that there’s an ETF for every asset class, and it shall be virtually free to own.
That’s close to the world we’re already living in. There’s now an ETF for pretty much every area of the market you could possibly want to own, from cash to liquid alts. The landscape is well and truly covered.
And it’s not just a matter of coverage. ETFs have a strong network effect, which is to say—unlike active funds—they’re getting better as they get bigger. Consider the costs. People underestimate this. Active managers have been “travel-agented.” They’ve been replaced by a new technology, and ETFs have gotten cheaper almost faster than computers.
This is a portfolio I track on ETF.com called the World’s Lowest-Cost ETF Portfolio.
It holds the lowest-cost ETF in every area of the market, from global equities to bonds, REITs and commodities. It gives you exposure to more than 4,000 stocks, 800 bonds and 20 commodities. And thanks to ETFs, you can buy it with a blended average expense ratio of just 0.08% a year.
Think about that. A few years ago, a midsize institutional investor would have killed to get this portfolio at this price, and now, anyone can buy it, all from the comfort of our brokerage account. It’s the greatest deal in financial history.
And it speaks to the fact that ETFs are tremendous tools. But it also speaks to us coming to the end of the line a little. If the fees on this portfolio drop to literally zero, you’ll save $800 in a year in a million dollar portfolio. That’s not anything, but in the scope of a $1 million portfolio, it’s largely irrelevant. The smallest timing difference on a rebalance will gain or lose you that much in a given year. Just having one trade go slightly wider than you expect will cost you $900.
And for that reason, the chart that we’ve been tracking for years, predicting the ETF industry crossing the mutual fund industry in 2025, is looking right on track. In fact, it’s looking like we might get there sooner, with a little luck.