The whole idea of passive investing – investors easily tracking the market by owning index funds – has been turned on its head by exchange-traded funds (ETFs).
Now, most ETFs are index funds, but the investors who own those funds have become anything but passive. Active ETF trading has become the new passive investing, which makes ETFs potential financial weapons of mass destruction.
I've been warning my readers about the dangers of ETFs for years – namely, that these vehicles can lead to a crash when so-called passive investors turn active, as they have been doing lately.
Barron's front-page story last Monday morning about John C. Bogle, the so-called "father of passive investing" through mutual funds, got me riled up. It's a good summation of some of the problems with index ETFs, as Bogle sees it, but it doesn't go into the nitty gritty at all.
We will, though, right here, because doing that will help give us what we need to protect ourselves from the chaos that could be just around the corner…
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains.Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.