Is this another diversification trap?BY ROGER MONTGOMERY | VOLUME 14, ISSUE 1 In the wake of the global financial crisis (GFC), index ETFs were meant to offer risk-averse investors a safe and easy way to gain diversification. But nine years into the global ... Get articles like this delivered to your email - Sign up for the free weekly newsletter  More Articles |
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FOUNDER & MANAGING DIRECTOR
BURCHEART PTY LTD
FOUNDER & MANAGING DIRECTOR
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Quite a few years ago I read an article where an expert was suggesting ETFs could well be the spark of another GFC size correction, much like sub prime mortgages led to the GFC.
They used Gold ETFs as an example with the point being that a run on an ETF could see the fund selling at higher prices than the the physical value of Gold itself, resulting in a collapse of the ETF itself.
I remember after reading the article, of the wise advice cliche of "only invest in what you understand".
Since then, I've asked many so called experts what exactly is an ETF and, to date, I've only received answers that state what they are used for rather than what they are.
Reading your article creates an uneasy feeling that the weight of money invested in these vehicles is not normal nor sustainable. Reminds me of another cliche "You get what you pay for" & in the case of ETFs, for the majority of investors it's a case of "you don't know what - you get what you pay for"!