Forums  > General  > ETFs don’t save (and indeed increase) costs in long term  
     
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finanzmaster


Total Posts: 125
Joined: Feb 2011
 
Posted: 2017-10-01 22:18
We all definitely once heard a mantra that the [stock] ETFs save costs.
Well, not anymore at least in long-term :)

https://letyourmoneygrow.com/2017/10/01/etfs-dont-save-indeed-increase-costs-long-term/

www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students

goldorak


Total Posts: 991
Joined: Nov 2004
 
Posted: 2017-10-03 09:04
Any kickback from the broker you mention in your post by any chance? Santa Claus

If you are not living on the edge you are taking up too much space.

finanzmaster


Total Posts: 125
Joined: Feb 2011
 
Posted: 2017-10-03 11:59
Yes, €20 per new active user from DeGiro, nothing from Robinhood.

I make no secret of the fact that there are GoogleAds and Affiliate Links on letYourMoneyGrow.com (and I really wonder why there are no on NP).

Whereas I have little control over what shows up in GoogleAds, I put affiliate links only to products and services, which I use myself.
As long as there is no Robinhood in Europe, I will use DeGiro: €2.00 per trade in German stocks, less than €1.00 in American stock and about 700 ETFs that can be traded quasi-free is awesome.

But if you know a better broker, operating in Germany, don't hesitate to tell me, if there is one, I will even put YOUR affiliate link on my site :)

www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students

goldorak


Total Posts: 991
Joined: Nov 2004
 
Posted: 2017-10-03 20:20
I do not really need sponsors, thank you. And I would love seeing all these retail investors buying stocks rather than ETFs managing equitization of dividend payments and management of other corp actions.

If you are not living on the edge you are taking up too much space.

afekz


Total Posts: 27
Joined: Jun 2010
 
Posted: 2017-10-04 14:57
@goldorak: not sure I grasp "managing equitization of dividend payments and management of other CA's". Are you referring to stock lending/borrowing 'optimizations'? Or something else?

Merci.

goldorak


Total Posts: 991
Joined: Nov 2004
 
Posted: 2017-10-04 18:00
Cash payments need to be reinvested, and you even need to do so from ex-date while you have not received the cash payment yet. Same for any other corp action.

Unless the investor is closely following his portfolio and able to finance at decent cost, the "stock portfolio is cheaper than an ETF" paradigm is just painful to hear.



If you are not living on the edge you are taking up too much space.

finanzmaster


Total Posts: 125
Joined: Feb 2011
 
Posted: 2017-10-04 22:22
I agree that dividend reinvestment is a Problem to some extent. But look carefully at the (typical) example I consider: it is not a one-time Investment, it is a Sparplan (saving plan). So the Dividends can be just reinvested with the next installment.
Btw, Not all ETFs reinvest winnings

www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students

AB12358


Total Posts: 47
Joined: Apr 2014
 
Posted: 2017-10-05 01:23
You don't seem to place any value on the time the investor would need to put in to education, research, and management.

Further, what about rebalancing? I imagine that would eat in to your 1% by which everyone can beat the market.

finanzmaster


Total Posts: 125
Joined: Feb 2011
 
Posted: 2017-10-05 09:01
>You don't seem to place any value on the time the investor would
>need to put in to education, research, and management.
I do :)
But this is not the main issue of my essay.
What I say is that in long-term the purchase of ETF is (somewhat) more expensive than purchasing the stocks directly.

Whether to pay these costs or not is upto investor. I don't say s/he should avoid ETFs (so it is not categorized as avoidIt it my blog), in fact it is a good price for the laziness.
But I am somewhat irritated with this marketing mantra "ETFs save costs". So I explain with numbers that it is (typically) not the case (thus numeracy4traders)

Also note that an investor does not necessarily need to track index precisely.

>Further, what about rebalancing?
Nothing :)
The strongest form of passive investment (=the simplest buy-n-hold) does not assume any rebalancing.
(indeed, a proper rebalancing is more complicated for a retail investor than the stock picking but a saving plan partially mitigates the problem).

> your 1% by which everyone can beat the market.
I don't say everyone can, I say it is relatively easy (or at least, principally possible with stocks directly) if an investor does his homework (analyzes fundamentals such as P/E among peers, reads news, and so on).

www.yetanotherquant.com - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students
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