I began my career on Wall Street in the midst of the financial revolution of the 1970s. During this period of economic and monetary upheaval, investors witnessed the creation of many new opportunities beyond the traditional stock and bond markets.
It became legal to…
- Buy gold and silver
- Open a Swiss bank account
- Earn interest on your checking account
- Invest in no-load mutual funds
- Buy real estate with little or nothing down
- Trade foreign currency and commodity futures
- Buy stocks and options from a discount broker (such as Charles Schwab).
These were heady times.
The ’70s also saw the invention of index investing when Jack Bogle introduced the Vanguard 500 Index Fund Investor Shares (VFINX) in 1976. It is now the largest mutual fund in the world, worth $441 billion. If you had invested $10,000 in the fund at its inception and reinvested all dividends, your account would be worth $22 million today.
The Financial Revolution Continues
The radical changes on Wall Street didn’t end in the ’70s. In the 1980s, we witnessed the introduction of the high-yielding corporate bond market (“junk” bonds is a misnomer), zero coupon bonds, stock-indexed annuities and hedge funds.
Then in 1993 came another revolution that introduced a direct competitor to mutual funds – exchange-traded funds (ETFs). That same year State Street Global Advisors began trading the SPDR S&P 500 Trust ETF (NYSE: SPY). It wasn’t long before Vanguard released its own ETF called the Vanguard S&P 500 ETF (NYSE: VOO).
Today there are more than 4,500 ETFs worldwide, and it may not be long before that doubles to surpass the existing 9,000 mutual funds.
We’ve explored some of the advantages of ETFs over mutual funds in Liberty Through Wealth before – namely their tax efficiency, ability to trade throughout the day and greater transparency.
But there’s another important difference. Most mutual funds now prohibit frequent trading. For example, if you ever get completely out of the Baron Growth Fund (BGRFX) – one of my favorite mutual funds – you will not be able to get back in.
Many mutual funds will also stop taking new investors if their funds are too popular.
For example, during the stock market boom in 1997, the Fidelity Magellan Fund (FMAGX) became so popular that it was closed to new investors (although I don’t recommend this fund anyway). Recently the Janus Henderson Triton Fund (JATTX), which specializes in technology stocks, was also closed to new investors.
That doesn’t happen with ETFs, which trade constantly on the exchanges without limits (unless the market itself is closed).
There are plenty of specialty ETFs to choose from, whether you are interested in growth stocks, technology, pharmaceuticals, utilities, income, foreign markets or precious metals. Others focus on market capitalization, fundamental indexes and actively traded funds.
One of my favorite ETFs is the ARK Innovation ETF (Nasdaq: ARKK), managed by CEO Cathie Wood, the keynote speaker at FreedomFest next year. The fund has a great track record specializing in disruptive technology firms, including 3D printer manufacturer Stratasys (Nasdaq: SSYS), gene editing technology company Editas Medicine (Nasdaq: EDIT), and Chinese giants Baidu (Nasdaq: BIDU) and Tencent Holdings (OTC: TCEHY). Its biggest position – Tesla (Nasdaq: TSLA) – is more controversial. CEO Elon Musk has tried our patience, but Wood is convinced that the company has turned the corner and will be increased in value, despite its monstrous debt load.
You know who else knows a thing or two about ETFs? The Oxford Club’s ETF Strategist Nicholas Vardy. In his brand-new trading service, Oxford Wealth Accelerator, he’ll guide you toward more of today’s best ETF choices.
Overall, ETFs make a good investment. Look to Nicholas’ Oxford Wealth Accelerator for specific advice – it’s guaranteed to help you navigate Mr. Market’s mood swings.
Good investing, AEIOU,
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Mark Skousen is a true believer in reason, self-determination, hard work and liberty. Since 1980, Mark has been the editor-in-chief of the award-winning investment newsletter Forecasts & Strategies. He’s a successful author and publisher of several books, including The Maxims of Wall Street and Investing in One Lesson. He is also the founder of FreedomFest, an annual gathering in Las Vegas of the freedom movement from around the world.