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Everybody loves exchange-traded funds (ETFs) these days.
There are a mind-boggling 2,000 ETFs, give or take, in the United States today. Roughly 70% of those are equity funds.
The three largest equity ETFs, packed with around 25% of all equity ETF assets, are S&P 500 index funds, like the SPDR S&P 500 ETF Trust (NYSE Arca: SPY).
Now, it's true that indexing gets most of the investment love at the moment, but there's a really brisk business in so-called "motif" or "thematic" passive strategies.
These let investors tap into just about any sector or idea that strikes their fancy.
Of course, you can passively invest in exciting sectors like robotics, defense cybersecurity, or biotechnology, but you can also buy ETFs that invest based on faith-based or special-value principles, like veganism (I'm serious) and animal welfare, or social justice.
Essentially, here in the weird year 2018, if an investor can fathom it, there is an ETF that can be created to allow for one-click investing in the idea.
But ultimately, most of the money is flowing into the large-cap indexes.
After all, indexing is the new pet rock/Rubik's Cube/Beanie Baby, and, as such, is the answer to all our investing prayers.
Wall Street is embracing the idea that the unmanaged indexes will usually outperform the highly paid active managers.
Faced with the prospect of collecting low fees, or worse, no fees, even the old-school brokerage and investment management firms are pushing the idea of low-cost index funds to their clients.
It is the ultimate solution (to a problem nobody really has). Like party drugs, nobody can get enough of these things.
Well, when (not if) the market turns and the sun comes up on the carnage, it's going to be much worse than anyone ever realized...
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.