Barry Rithholz in today’s Washington Post Business Section:
From my perspective, these are the more significant trends that will probably continue into 2013:
1. ETFs are eating everything.
The revenge of John Bogle continues apace. As investors figure out that they are not good at stock-picking or managing trades, they have also learned that most professionals are not much better. Paying high mutual fund expenses to a manager who underperforms a benchmark makes little sense. This realization has led to the rise of inexpensive exchange-traded funds and indices.
This “ETFication” has obvious advantages: low costs, transparency, one-click decision-making. ETFs are accessible through the stock market for easier execution, with no minimum investment required.
MP: I confess that I’m an “unofficial” Boglehead.
Update: As an example of the low expenses/fees for ETFs, the Vanguard S&P 500 ETF has an annual expense ratio of only 0.05%, which in dollars would be only $50 per $100,000 invested, or $500 per $1 million. In contrast, the average expense ratio for an actively managed large-cap stock fund is 1.12%, which would mean $1,120 in fund expenses per $100,000 invested, and $11,200 per $1 million invested. And in most cases, the actively managed funds earn lower returns than an indexed fund, so you’re paying thousands of dollars in fees for the active funds to earn you a lower return than an index fund! For example, the legendary Fidelity Magellan Fund has under-perfomed the S&P500 Index over the last 26 years since 1986, and it’s not even close – the Magellan Fund has been almost flat for a quarter-century, and is up by only about 43% over that entire period, while the S&P500 Index is up by more than 500%!