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MR MONEY MAKER: Active vs. Passive: Where are your funds going?

Active vs. Passive: How to spend your money? MR MONEY MAKER ETF Tracker Guide


history

In 1995, Barclays acquired a deficit fund management company called Wells Fargo Nikko.

Based in California, he developed simple investment ideas and eventually dominated the world of investment management.

Exchange-traded funds that focus on a particular index are effectively traded as common stock rather than funds.This means they are easy, fast and cheap to trade

Buying and holding the same company at the same rate as the S & P 500 Index (500 major US stock indexes) could only beat most of Wall Street’s much more expensive fund managers.

As the name implies, there have always been “tracker” funds that track a particular index, but they have been different. They were called exchange-traded funds (ETFs) and were effectively traded as common stock rather than funds.

This meant that it was easy, fast and cheap to trade, rather than the rather tedious process involving old funds and unit trusts. Barclays has paid the company over $ 440 million. This was considered a huge sum for unproven unprofitable investment companies at the time.

This provided Barclays with approximately $ 200 billion in new assets. The last number I saw last year shows that ETFs are currently around $ 7.7 trillion.

What can we learn from now on?

ETFs are currently booming around the world, covering many asset classes and with many variations, but at the core of them are very widespread investments in the world and across those asset classes. It’s an inexpensive method.

Therefore, it is easy to access from major markets to emerging markets. The competition was fierce, which reduced competitive fees and made it very cost-effective (one ETF paid to investors to own it for some time).

And a warning?

However, be aware that ETFs simply reflect the index you are following. The index is often distorted by certain sectors, such as Nasdaq technology and the FTSE 100 miners and oil companies.

Also, some ETFs directly own a share of the index, while others simply “reflect” them and are not direct owners. They are called “synthetic” ETFs and are not as transparent as the direct ones.

what can I do?

Warren Buffett, a very successful US investor, has previously recommended that for most retail investors, simply buying an ETF is a very efficient way to develop their investment, and I’m sure. I accept.

Over the past few years, ETFs in major US indices have been significantly better and cheaper than most professional investors.

These are not solutions to all portfolio problems, but they make a very valuable, flexible and low cost tool available to all of us.

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MR MONEY MAKER: Active vs. Passive: Where are your funds going?

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