$9.8 Trillion Pouring Into ETFs and Index Funds Triggers Warning

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Slap In The Face Award

Transcript:

The “Slap in the Face” Award this week goes out to all those folks mindlessly pouring money into index funds and ETFs.

From my perspective, these “click and forget” investments are just the most recent in a long line of ideas Wall Street has sold small investors as “can’t lose.”

In my 34 years in the markets, I’ve seen one after another of these types of Wall Street contraptions… On the surface, they look foolproof, but they never are.

Believe me, nothing is further from the truth. I’m here to tell you this is a disaster in the making.

Now, I can’t tell you exactly how or what will cause the next crash of these ETFs – the most recent “no brainer” investment – but I can guarantee it’ll do exactly that.

It’s just a matter of time.

I know this because the same fear-driven decision-making that’s historically cost the little guy trillions in losses will kick in again and drive another bloodbath.

Am I a complete cynic and totally opposed to index and ETF investing?

No on both counts!


I’ve just been around the block too many times to get sucked into this mob mentality.

ETFs have their place. But consider this…

More than 80% of the recent $9.8 billion one-week ETF inflow went to just one fund: the SPDR S&P 500. It’s one of the scariest trends I have ever seen.

And based on the herds’ perfect track record of buying high and selling low, there’s no doubt in my mind about how this will end.

When I think about this situation, I can’t help but remember my parents’ advice about life. I’m sure many of your parents said the same thing…

“Nothing worth having is ever easy, and if everyone is doing it, watch out.”

And that’s exactly what’s happening with ETF and index investing right now. It looks so easy, and everyone’s doing it.

Not only is everybody doing it, but almost everyone is going into just one fund.

So take a step back and think about what our parents taught us about life.

If everybody is doing it, be careful. And if it’s worth having, it takes effort.

I know we were too young and unworldly to listen to our parents back then, but we can’t use that excuse anymore.

Be careful with your money!

Good investing,

Steve