At ETF PM, we choose to invest primarily using index exchange-traded funds (ETFs) for the following main reasons:
1) Asset allocation typically drives portfolio performance far more than individual security selection, and index ETFs enable investors to engage and shift their asset allocation efficiently as needed.
2) Index ETFs are among the best performing, most diversified, liquid, and low-cost securities traded on the major stock exchanges. In fact, the largest ETF providers are also among the largest global asset managers, providing a measure of financial security.
3) Leading investors, such as Warren Buffett and David Swensen, manager of Yale’s endowment fund, strongly recommend index ETFs. Mr. Swensen asserts that ETFs avoid many of the conflicts of interest inherent in mutual funds, while typically delivering better performance with lower cost and greater tax-efficiency (read his book, “Unconventional Success: A Fundamental Approach To Personal Investment”).
4) Leveraged index ETFs enable investors to magnify their portfolio asset allocations efficiently as needed. Leading investors today are increasingly using leverage on lower risk portfolios in order to enhance overall performance.
Over the past 6 years as of August 2018, the Income & Growth 3x (IG 3x) investable benchmark returned 233% versus 111% and 50% for the Buffett and Swensen ETF portfolios, respectively.