About five years ago I conducted some research to determine if I could find ETFs to replace the mutual funds I was using. For example, I used every major subcategory and filtered the available ETFs through my Fiduciary Scorecard system. Then I took the best ETFs and compared them to my mutual funds. Because I used a strict quantitative process, the amount of bias was minimal. My conclusion? I found better choices for stocks and bonds with mutual funds, but ETFs were dominant in the alternative space. However, that was then, and this is now.
After a few years my paradigm has shifted. In short, I find many excellent choices among stock ETFs. There are a few reasons I prefer ETFs over mutual funds and in this post, I’d like to explain how I am using ETFs in portfolios with great success.
After 25 years in the business, I felt as though I had run the gamut. I had tried many different strategies and studied many more. Although academia can teach us a great deal about investing, until you test the theories in a real-world situation, it’s still just a theory.
One important lesson I’ve learned is that too much diversification is not necessarily a good thing. In fact, it’s only good in a bear market. A highly diversified portfolio will produce little fruit in a bull market. We’ll get more into that another time. Back to the ETFs.
Why I Like ETFs: Flexibility and TSOs