Or a high risk trading strategy?
In the last 20 years, the demand for low cost ETFs has exploded. Traditionally, a company like I Know First would be hard pressed to offer the lower cost of a fund like this (a little more than $2,400 annually) as a regular fund, because it would require more sophisticated data analysis to achieve accurate results, the costs of which could not be covered by the expense ratio.
However, recent research that I conducted for the Company sheds some light on the possible profitability of “low cost” ETFs compared to traditional index funds. The analysis was conducted using data from ETF provider, iShares. Below are my findings for a 1,000 stock ETF portfolio that I designed with the help of the company. This is not an endorsement of the fund itself; some aspects of the performance analysis were not very rigorous, and I would not advise to invest any money in a similar fund today.
The results were not what we had expected at all – a low cost, a high return investment strategy outperformed the traditional index fund strategies, with the low cost ETFs outperforming the index with its higher expense ratio.
This is an impressive result, considering that most of today’s active stock market funds are not very low cost, and the returns they achieve are not all that much higher than a traditional index fund.
This is exactly why most experts recommend ETFs – the lower the cost, the better the returns of the ETF, so more people can invest in this strategy.
To understand these results, let’s go back to the origin of this concept.
Who Is This Investment Strategy For, Exactly?
First, let’s define who this investment strategy is for. In particular, let’s compare it to stocks.
In Stock Stocks, low cost ETFs give you better returns than traditional index funds of the same size – the lowest cost index fund I know is Vanguard 1000 Index Fund, which costs just $2.08 per share.
In Stock Stocks, low fees make it possible to earn higher returns than index funds, but also gives you the ability to beat the benchmarks – Vanguard’s 400 index fund cost $11,095 annually during this analysis, the lowest cost index fund I know.
So you really want low cost ETFs, right?
Of course, this is one of the most important parts, and you wouldn’t want to use this investment strategy without understanding
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