1 00:00:00,000 --> 00:00:01,080 Hey everyone, welcome back. 2 00:00:01,080 --> 00:00:03,720 Today we're diving into the world of ETFs. 3 00:00:03,720 --> 00:00:04,980 Exchange traded funds. 4 00:00:04,980 --> 00:00:05,820 Yeah, exactly. 5 00:00:05,820 --> 00:00:06,320 Yeah. 6 00:00:06,320 --> 00:00:08,960 Those baskets of assets you can trade like stocks. 7 00:00:08,960 --> 00:00:10,240 Super popular these days. 8 00:00:10,240 --> 00:00:11,120 Absolutely. 9 00:00:11,120 --> 00:00:14,560 Convenience, diversification, loafies, what's not to like. 10 00:00:14,560 --> 00:00:15,060 Right? 11 00:00:15,060 --> 00:00:16,360 Sounds like a dream. 12 00:00:16,360 --> 00:00:18,600 But we came across this podcast. 13 00:00:18,600 --> 00:00:21,200 It's called The Shocking Truth About ETFs, 14 00:00:21,200 --> 00:00:23,200 What They Don't Want You To Know. 15 00:00:23,200 --> 00:00:24,680 Woo, catchy title. 16 00:00:24,680 --> 00:00:26,120 Yeah, a bit dramatic maybe. 17 00:00:26,120 --> 00:00:28,120 But it got us thinking, you know. 18 00:00:28,120 --> 00:00:30,080 Are ETFs really all they're cracked up to be? 19 00:00:30,080 --> 00:00:31,960 So we thought, let's do a deep dive. 20 00:00:31,960 --> 00:00:35,040 And pack some of the less glamorous aspects, 21 00:00:35,040 --> 00:00:36,360 the stuff they don't always tell you 22 00:00:36,360 --> 00:00:37,760 in those shiny brochures. 23 00:00:37,760 --> 00:00:38,640 Exactly. 24 00:00:38,640 --> 00:00:40,800 Now look, we're not saying everything in that podcast 25 00:00:40,800 --> 00:00:43,120 is gospel, but it definitely raises some interesting 26 00:00:43,120 --> 00:00:43,720 questions. 27 00:00:43,720 --> 00:00:45,560 And we want to explore those questions with you. 28 00:00:45,560 --> 00:00:47,720 More like analyze them, right? 29 00:00:47,720 --> 00:00:50,600 Think critically, separate the hype from the reality. 30 00:00:50,600 --> 00:00:51,240 Exactly. 31 00:00:51,240 --> 00:00:54,040 So let's start with this ETF boom everyone's talking about. 32 00:00:54,040 --> 00:00:58,280 I mean, over $10 trillion globally invested in ETFs. 33 00:00:58,280 --> 00:00:59,160 That's huge. 34 00:00:59,160 --> 00:01:01,440 It's a testament to their popularity, no doubt. 35 00:01:01,440 --> 00:01:04,560 Easy to use, accessible to a wide range of investors. 36 00:01:04,560 --> 00:01:05,160 Right. 37 00:01:05,160 --> 00:01:07,600 But one of the things that really struck me in that shocking truth 38 00:01:07,600 --> 00:01:12,600 podcast was this anecdote about space exploration ETFs. 39 00:01:12,600 --> 00:01:13,920 Oh, I remember that one. 40 00:01:13,920 --> 00:01:16,080 So apparently a lot of the companies in this ETF 41 00:01:16,080 --> 00:01:18,600 weren't actually building rockets or planning missions 42 00:01:18,600 --> 00:01:19,320 to Mars. 43 00:01:19,320 --> 00:01:21,480 They were just satellite providers. 44 00:01:21,480 --> 00:01:23,320 Not quite the image that comes to mind when 45 00:01:23,320 --> 00:01:25,040 you hear space exploration, is it? 46 00:01:25,040 --> 00:01:25,720 Right. 47 00:01:25,720 --> 00:01:28,560 It's like I'm picturing astronauts and moon landings, 48 00:01:28,560 --> 00:01:30,640 and then it turns out I'm invested in companies 49 00:01:30,640 --> 00:01:33,720 that beam cable TV signals from space. 50 00:01:33,720 --> 00:01:36,280 It's a great example of how marketing can sometimes 51 00:01:36,280 --> 00:01:39,400 create a disconnect from the underlying reality. 52 00:01:39,400 --> 00:01:43,080 Investors get drawn in by the theme, the story. 53 00:01:43,080 --> 00:01:44,520 But they don't always look closely 54 00:01:44,520 --> 00:01:46,040 at what's actually in the ETF. 55 00:01:46,040 --> 00:01:48,160 It's a reminder to always do your homework, 56 00:01:48,160 --> 00:01:49,400 read the fine print. 57 00:01:49,400 --> 00:01:49,800 OK. 58 00:01:49,800 --> 00:01:53,280 So lesson one, don't judge an ETF by its cover, right? 59 00:01:53,280 --> 00:01:54,080 Right. 60 00:01:54,080 --> 00:01:55,880 Now let's talk about liquidity. 61 00:01:55,880 --> 00:01:56,280 Yes. 62 00:01:56,280 --> 00:01:58,600 The ability to buy or sell an asset easily 63 00:01:58,600 --> 00:02:00,840 without causing big price swings, 64 00:02:00,840 --> 00:02:02,960 it's crucial for any investment. 65 00:02:02,960 --> 00:02:05,520 And we often hear that ETFs are super liquid, right? 66 00:02:05,520 --> 00:02:07,640 It's one of their big selling points. 67 00:02:07,640 --> 00:02:10,000 But is that always true? 68 00:02:10,000 --> 00:02:12,960 The shocking truth podcast made me question that assumption. 69 00:02:12,960 --> 00:02:13,280 Yeah. 70 00:02:13,280 --> 00:02:16,360 They highlighted the fact that an ETF's liquidity is actually 71 00:02:16,360 --> 00:02:19,520 tied to the liquidity of its underlying assets. 72 00:02:19,520 --> 00:02:22,640 So if an ETF holds a bunch of illiquid assets, 73 00:02:22,640 --> 00:02:25,080 like certain types of bonds, things 74 00:02:25,080 --> 00:02:28,400 can get tricky if a lot of investors want to sell quickly. 75 00:02:28,400 --> 00:02:28,880 Exactly. 76 00:02:28,880 --> 00:02:31,160 You can't just assume that because it's an ETF, 77 00:02:31,160 --> 00:02:32,880 it's automatically easy to trade. 78 00:02:32,880 --> 00:02:33,280 Right. 79 00:02:33,280 --> 00:02:34,800 And they gave a specific example. 80 00:02:34,800 --> 00:02:38,760 It was the iShares iBox dollar high yield corporate bond 81 00:02:38,760 --> 00:02:40,760 EPF ticker HEYG. 82 00:02:40,760 --> 00:02:41,880 I'm familiar with that one. 83 00:02:41,880 --> 00:02:44,560 A popular choice for investors seeking higher yields. 84 00:02:44,560 --> 00:02:47,840 But during the market crash in March 2020, 85 00:02:47,840 --> 00:02:50,480 this ETF traded at a significant discount 86 00:02:50,480 --> 00:02:51,920 to its net asset value. 87 00:02:51,920 --> 00:02:53,240 Wow, that's a big red flag. 88 00:02:53,240 --> 00:02:53,840 What happened? 89 00:02:53,840 --> 00:02:56,560 Well, the underlying bonds, those high yield corporate bonds, 90 00:02:56,560 --> 00:02:59,160 became very difficult to sell in a panic. 91 00:02:59,160 --> 00:03:01,320 So the ETF itself was liquid, meaning 92 00:03:01,320 --> 00:03:04,800 there were plenty of buyers and sellers for the ETF shares. 93 00:03:04,800 --> 00:03:06,840 But the underlying assets were not. 94 00:03:06,840 --> 00:03:07,320 Exactly. 95 00:03:07,320 --> 00:03:09,360 And that disconnect, that mismatch, 96 00:03:09,360 --> 00:03:12,280 can lead to unexpected losses for ETF investors. 97 00:03:12,280 --> 00:03:15,720 It's a reminder that even in the world of ETFs, which are often 98 00:03:15,720 --> 00:03:17,720 seen as more transparent and efficient 99 00:03:17,720 --> 00:03:20,360 than traditional mutual funds, you still 100 00:03:20,360 --> 00:03:23,320 need to understand the underlying assets. 101 00:03:23,320 --> 00:03:27,000 OK, so we need to be mindful of what's inside the ETF, 102 00:03:27,000 --> 00:03:28,960 not just the name or the category. 103 00:03:28,960 --> 00:03:32,040 And then there's this whole other world of synthetic ETFs. 104 00:03:32,040 --> 00:03:33,480 Ah, yes. 105 00:03:33,480 --> 00:03:34,840 Those are interesting creatures. 106 00:03:34,840 --> 00:03:36,840 To be honest, I didn't really grasp the concept 107 00:03:36,840 --> 00:03:38,240 until I listened to that podcast. 108 00:03:38,240 --> 00:03:40,520 Well, they can be a bit complex. 109 00:03:40,520 --> 00:03:43,440 Instead of directly owning the underlying assets, 110 00:03:43,440 --> 00:03:47,160 synthetic ETFs use derivatives, specifically swaps 111 00:03:47,160 --> 00:03:48,280 to track an index. 112 00:03:48,280 --> 00:03:49,440 OK, I'm already lost. 113 00:03:49,440 --> 00:03:50,840 Derivatives, swaps. 114 00:03:50,840 --> 00:03:51,960 Think of it like this. 115 00:03:51,960 --> 00:03:54,640 You want to battle on the performance of the S&P 500, 116 00:03:54,640 --> 00:03:57,440 but you don't want to buy all 500 stocks individually. 117 00:03:57,440 --> 00:03:58,880 Yeah, that would be a lot of paperwork. 118 00:03:58,880 --> 00:04:00,360 So you enter into a swap agreement 119 00:04:00,360 --> 00:04:03,000 with another institution, usually a big bank. 120 00:04:03,000 --> 00:04:05,840 The bank promises to pay you the return of the S&P 500. 121 00:04:05,840 --> 00:04:06,760 And in exchange. 122 00:04:06,760 --> 00:04:08,000 You pay them a fee. 123 00:04:08,000 --> 00:04:10,360 It's like you're outsourcing the actual ownership 124 00:04:10,360 --> 00:04:11,160 of the assets. 125 00:04:11,160 --> 00:04:12,600 OK, that makes sense. 126 00:04:12,600 --> 00:04:14,680 But doesn't that introduce extra risk? 127 00:04:14,680 --> 00:04:16,800 I mean, what if the bank goes belly up? 128 00:04:16,800 --> 00:04:17,920 You're absolutely right. 129 00:04:17,920 --> 00:04:20,240 That's where counterparty risk comes in. 130 00:04:20,240 --> 00:04:22,560 It's the risk that the institution 131 00:04:22,560 --> 00:04:25,200 on the other side of that swap might not 132 00:04:25,200 --> 00:04:27,120 be able to fulfill its obligations. 133 00:04:27,120 --> 00:04:28,920 So it's like a chain if one link breaks, 134 00:04:28,920 --> 00:04:29,960 the whole thing falls apart. 135 00:04:29,960 --> 00:04:30,760 Exactly. 136 00:04:30,760 --> 00:04:33,880 And with synthetic ETFs, you have that extra layer 137 00:04:33,880 --> 00:04:35,720 of counterparty risk that you wouldn't 138 00:04:35,720 --> 00:04:39,880 have with a traditional ETF that directly owns the assets. 139 00:04:39,880 --> 00:04:42,080 OK, so another thing to be aware of. 140 00:04:42,080 --> 00:04:43,600 Now, let's talk about diversification. 141 00:04:43,600 --> 00:04:45,320 It's like the golden rule of investing, right? 142 00:04:45,320 --> 00:04:46,880 Don't put all your eggs in one basket. 143 00:04:46,880 --> 00:04:47,640 Absolutely. 144 00:04:47,640 --> 00:04:50,320 Diversification is crucial for managing risk. 145 00:04:50,320 --> 00:04:52,320 But the Shocking Truth podcast actually 146 00:04:52,320 --> 00:04:55,320 challenged that notion, saying that over-diversification 147 00:04:55,320 --> 00:04:56,320 can be a problem. 148 00:04:56,320 --> 00:04:59,000 Hm, that's an interesting perspective. 149 00:04:59,000 --> 00:05:01,640 It's true that more isn't always better. 150 00:05:01,640 --> 00:05:04,360 At some point, you might start to dilute your returns. 151 00:05:04,360 --> 00:05:07,120 They use the S&P 500 ETF as an example. 152 00:05:07,120 --> 00:05:07,800 It's very popular. 153 00:05:07,800 --> 00:05:09,680 It tracks a broad market index. 154 00:05:09,680 --> 00:05:11,680 But maybe we don't actually need to be invested 155 00:05:11,680 --> 00:05:13,160 in all 500 companies. 156 00:05:13,160 --> 00:05:14,760 That's a good point. 157 00:05:14,760 --> 00:05:17,000 Let's say your goal is long-term growth. 158 00:05:17,000 --> 00:05:20,080 You're comfortable with a moderate level of risk. 159 00:05:20,080 --> 00:05:23,360 Owning an S&P 500 ETF might seem like a safe bet, 160 00:05:23,360 --> 00:05:26,560 but you're essentially exposed to the entire US large cap 161 00:05:26,560 --> 00:05:27,200 market. 162 00:05:27,200 --> 00:05:29,360 Right, which might not be the most efficient way 163 00:05:29,360 --> 00:05:31,480 to achieve my specific goals. 164 00:05:31,480 --> 00:05:32,720 Exactly. 165 00:05:32,720 --> 00:05:36,360 And that brings us to the concept of strategic diversification. 166 00:05:36,360 --> 00:05:38,840 OK, so it's not just about owning a lot of different things. 167 00:05:38,840 --> 00:05:42,040 It's about choosing investments that complement each other 168 00:05:42,040 --> 00:05:44,560 and actually align with your goals and your risk tolerance. 169 00:05:44,560 --> 00:05:45,480 Exactly. 170 00:05:45,480 --> 00:05:48,400 You need a plan, a strategy. 171 00:05:48,400 --> 00:05:50,880 Don't just diversify for the sake of diversification. 172 00:05:50,880 --> 00:05:52,240 That makes a lot of sense. 173 00:05:52,240 --> 00:05:54,320 Now, another thing that the podcast got me thinking about 174 00:05:54,320 --> 00:05:56,560 is the ETF industry itself. 175 00:05:56,560 --> 00:05:57,760 I mean, it's a business, right? 176 00:05:57,760 --> 00:05:58,200 Yeah. 177 00:05:58,200 --> 00:06:00,400 And like any business, it's driven by profit. 178 00:06:00,400 --> 00:06:02,960 That's a crucial point that often gets overlooked. 179 00:06:02,960 --> 00:06:05,800 We tend to think of ETFs as these passive low-cost 180 00:06:05,800 --> 00:06:08,440 investments, but there are big companies behind them, 181 00:06:08,440 --> 00:06:10,240 and they're in the business of making money. 182 00:06:10,240 --> 00:06:10,600 Right. 183 00:06:10,600 --> 00:06:12,360 They mentioned BlackRock and Vanguard, 184 00:06:12,360 --> 00:06:14,360 these giants of the financial world. 185 00:06:14,360 --> 00:06:18,040 They create and market ETFs, and they make money through fees. 186 00:06:18,040 --> 00:06:20,680 And those fees, even if they seem small, 187 00:06:20,680 --> 00:06:23,000 can eat into your returns over time, 188 00:06:23,000 --> 00:06:25,520 especially if an ETF doesn't perform well. 189 00:06:25,520 --> 00:06:27,600 So we can't ignore the fees completely, 190 00:06:27,600 --> 00:06:30,040 and then there's this whole trend of thematic ETFs, 191 00:06:30,040 --> 00:06:31,720 which I find fascinating. 192 00:06:31,720 --> 00:06:34,680 Those funds that focus on specific themes like green energy, 193 00:06:34,680 --> 00:06:37,600 artificial intelligence, or even as we saw earlier, 194 00:06:37,600 --> 00:06:38,960 space exploration. 195 00:06:38,960 --> 00:06:41,040 Thematic ETFs can be very appealing, 196 00:06:41,040 --> 00:06:43,520 especially to newer investors who are excited 197 00:06:43,520 --> 00:06:46,280 about a particular trend or industry. 198 00:06:46,280 --> 00:06:46,480 Right. 199 00:06:46,480 --> 00:06:48,800 It's like, I believe in the future of clean energy, 200 00:06:48,800 --> 00:06:50,840 so I'm going to invest in the clean energy ETF. 201 00:06:50,840 --> 00:06:53,560 But as we learned from that space exploration example, 202 00:06:53,560 --> 00:06:54,320 we need to be careful. 203 00:06:54,320 --> 00:06:55,160 Absolutely. 204 00:06:55,160 --> 00:06:57,280 A catchy name and a compelling story 205 00:06:57,280 --> 00:06:59,160 don't guarantee success. 206 00:06:59,160 --> 00:07:00,640 You need to look beyond the marketing 207 00:07:00,640 --> 00:07:03,960 and see if the underlying holdings actually match the theme. 208 00:07:03,960 --> 00:07:06,080 And if they have the potential to generate the returns 209 00:07:06,080 --> 00:07:06,840 you're hoping for. 210 00:07:06,840 --> 00:07:07,520 Exactly. 211 00:07:07,520 --> 00:07:09,800 Don't let excitement cloud your judgment. 212 00:07:09,800 --> 00:07:11,000 Always do your research. 213 00:07:11,000 --> 00:07:11,320 OK. 214 00:07:11,320 --> 00:07:15,240 So we've talked about marketing hype, liquidity concerns, 215 00:07:15,240 --> 00:07:18,240 counterparty risk, over diversification, 216 00:07:18,240 --> 00:07:20,840 and the profit-driven nature of the industry. 217 00:07:20,840 --> 00:07:22,920 Is there anything else we need to be aware of? 218 00:07:22,920 --> 00:07:24,640 Well, the podcast also raised a concern 219 00:07:24,640 --> 00:07:26,760 about systemic risk, which is something that's 220 00:07:26,760 --> 00:07:28,560 been on my mind a lot lately. 221 00:07:28,560 --> 00:07:29,360 Systemic risk. 222 00:07:29,360 --> 00:07:29,960 What's that? 223 00:07:29,960 --> 00:07:33,720 It's the risk that a problem in one part of the financial system 224 00:07:33,720 --> 00:07:36,600 could trigger a cascade of failures leading 225 00:07:36,600 --> 00:07:38,600 to a broader market meltdown. 226 00:07:38,600 --> 00:07:38,960 OK. 227 00:07:38,960 --> 00:07:39,760 That sounds scary. 228 00:07:39,760 --> 00:07:40,920 It is. 229 00:07:40,920 --> 00:07:44,240 And the concern with ETFs is that if everyone piles 230 00:07:44,240 --> 00:07:47,480 into the same popular ETFs, it could actually 231 00:07:47,480 --> 00:07:49,600 create instability in the market. 232 00:07:49,600 --> 00:07:52,280 So it's like if everyone tries to exit a crowded theater 233 00:07:52,280 --> 00:07:53,760 through the same door all at once. 234 00:07:53,760 --> 00:07:54,560 Precisely. 235 00:07:54,560 --> 00:07:56,920 If a large number of investors suddenly 236 00:07:56,920 --> 00:08:00,360 want to sell their ETF shares and there aren't enough buyers, 237 00:08:00,360 --> 00:08:01,640 prices could plummet. 238 00:08:01,640 --> 00:08:03,320 And that could create a ripple effect 239 00:08:03,320 --> 00:08:05,520 throughout the market, exacerbating a downturn. 240 00:08:05,520 --> 00:08:06,040 OK. 241 00:08:06,040 --> 00:08:07,040 That's a sobering thought. 242 00:08:07,040 --> 00:08:10,120 So it seems like there's a lot to consider when it comes to ETFs. 243 00:08:10,120 --> 00:08:11,880 It's not just about picking a catchy name 244 00:08:11,880 --> 00:08:12,800 and hoping for the best. 245 00:08:12,800 --> 00:08:13,680 Absolutely not. 246 00:08:13,680 --> 00:08:15,840 ETFs can be powerful tools for building 247 00:08:15,840 --> 00:08:17,520 a diversified portfolio. 248 00:08:17,520 --> 00:08:20,360 But like any tool, they need to be used wisely 249 00:08:20,360 --> 00:08:22,880 and with a clear understanding of the risks involved. 250 00:08:22,880 --> 00:08:25,880 We need to be informed investors doing our due diligence 251 00:08:25,880 --> 00:08:27,840 and asking the right questions. 252 00:08:27,840 --> 00:08:29,880 So for everyone listening, let's take a moment 253 00:08:29,880 --> 00:08:31,520 to absorb all this information. 254 00:08:31,520 --> 00:08:33,720 And then we'll come back with some practical tips on how 255 00:08:33,720 --> 00:08:36,800 to choose and use ETFs effectively. 256 00:08:36,800 --> 00:08:37,360 Stay with us. 257 00:08:37,360 --> 00:08:39,600 We'll be right back. 258 00:08:39,600 --> 00:08:40,640 Welcome back, everyone. 259 00:08:40,640 --> 00:08:43,960 Hope you all had a good chance to let all that sink in about ETFs. 260 00:08:43,960 --> 00:08:45,400 Now let's talk strategy. 261 00:08:45,400 --> 00:08:46,600 Yeah, let's get practical. 262 00:08:46,600 --> 00:08:48,760 What can we actually do with all this information? 263 00:08:48,760 --> 00:08:49,120 Right. 264 00:08:49,120 --> 00:08:51,880 We don't want anyone walking away thinking ETFs are a bad idea. 265 00:08:51,880 --> 00:08:52,920 No, definitely not. 266 00:08:52,920 --> 00:08:55,400 They can be great tools, but we need to use them wisely. 267 00:08:55,400 --> 00:08:56,200 Exactly. 268 00:08:56,200 --> 00:08:59,080 And that starts with, you guessed it, research. 269 00:08:59,080 --> 00:09:00,400 Always research. 270 00:09:00,400 --> 00:09:02,000 I feel like that's our motto on this show. 271 00:09:02,000 --> 00:09:06,120 Well, it's good advice for any investment, but especially ETFs. 272 00:09:06,120 --> 00:09:07,960 It's tempting to jump on the bandwagon, 273 00:09:07,960 --> 00:09:10,320 you know, see a hot new ETF. 274 00:09:10,320 --> 00:09:11,480 Everyone's talking about it. 275 00:09:11,480 --> 00:09:13,000 Oh, yeah, the FOMO is real. 276 00:09:13,000 --> 00:09:16,280 But before you hit that buy button, take a step back. 277 00:09:16,280 --> 00:09:18,480 Read the ETF's prospectus. 278 00:09:18,480 --> 00:09:19,240 The prospectus. 279 00:09:19,240 --> 00:09:21,040 Ugh, that sounds so boring. 280 00:09:21,040 --> 00:09:21,680 I know. 281 00:09:21,680 --> 00:09:21,960 I know. 282 00:09:21,960 --> 00:09:24,080 It's not exactly a page-turner. 283 00:09:24,080 --> 00:09:25,720 But it's packed with information. 284 00:09:25,720 --> 00:09:27,840 You wouldn't buy a house without inspecting it, right? 285 00:09:27,840 --> 00:09:28,320 True. 286 00:09:28,320 --> 00:09:31,000 So the prospectus is like the home inspection report 287 00:09:31,000 --> 00:09:31,840 for an ETF. 288 00:09:31,840 --> 00:09:32,560 Exactly. 289 00:09:32,560 --> 00:09:35,440 It tells you everything you need to know about the ETF's holdings, 290 00:09:35,440 --> 00:09:37,920 its investment strategy, its fee structure. 291 00:09:37,920 --> 00:09:39,480 OK, so where do we even start? 292 00:09:39,480 --> 00:09:39,840 Yeah. 293 00:09:39,840 --> 00:09:42,120 What should we be looking for in that mountain of text? 294 00:09:42,120 --> 00:09:45,960 Two key things I always focus on are liquidity and tracking 295 00:09:45,960 --> 00:09:46,320 error. 296 00:09:46,320 --> 00:09:48,200 Liquidity we talked about earlier, right? 297 00:09:48,200 --> 00:09:50,840 Making sure you can easily buy or sell the ETF 298 00:09:50,840 --> 00:09:52,520 without huge price swings. 299 00:09:52,520 --> 00:09:53,200 Exactly. 300 00:09:53,200 --> 00:09:56,680 The prospectus will usually have data on the ETF's average 301 00:09:56,680 --> 00:09:58,960 daily trading volume, which can give you 302 00:09:58,960 --> 00:10:00,240 a sense of its liquidity. 303 00:10:00,240 --> 00:10:01,400 And tracking error. 304 00:10:01,400 --> 00:10:02,800 Remind me what that is again. 305 00:10:02,800 --> 00:10:03,200 Sure. 306 00:10:03,200 --> 00:10:06,240 It measures how closely the ETF's performance matches 307 00:10:06,240 --> 00:10:08,160 the index it's supposed to track. 308 00:10:08,160 --> 00:10:09,920 You want a low tracking error, which 309 00:10:09,920 --> 00:10:12,880 means the ETF is doing a good job of replicating 310 00:10:12,880 --> 00:10:14,040 the index's returns. 311 00:10:14,040 --> 00:10:16,040 So it's like a report card for the ETF. 312 00:10:16,040 --> 00:10:17,480 Is it doing what it's supposed to do? 313 00:10:17,480 --> 00:10:17,880 Exactly. 314 00:10:17,880 --> 00:10:19,600 OK, so we've done a research. 315 00:10:19,600 --> 00:10:22,760 We've found some ETFs that seem to fit the bill. 316 00:10:22,760 --> 00:10:23,960 Now what? 317 00:10:23,960 --> 00:10:25,920 How do we actually use them strategically? 318 00:10:25,920 --> 00:10:27,280 That's where the fun begins. 319 00:10:27,280 --> 00:10:29,320 ETFs are so versatile, you can use them 320 00:10:29,320 --> 00:10:31,240 for all sorts of investment goals. 321 00:10:31,240 --> 00:10:32,120 Like what? 322 00:10:32,120 --> 00:10:33,120 Give me some examples. 323 00:10:33,120 --> 00:10:35,600 Well, let's say you're looking for stability and income. 324 00:10:35,600 --> 00:10:38,360 Bond ETFs can be a great option. 325 00:10:38,360 --> 00:10:38,640 Right. 326 00:10:38,640 --> 00:10:40,880 Bonds are generally less volatile than stocks. 327 00:10:40,880 --> 00:10:42,960 They can add some balance to a portfolio. 328 00:10:42,960 --> 00:10:43,960 Exactly. 329 00:10:43,960 --> 00:10:47,200 And there are so many different bond ETFs to choose from. 330 00:10:47,200 --> 00:10:49,400 You can focus on different types of bonds, different 331 00:10:49,400 --> 00:10:51,360 maturities, different credit qualities. 332 00:10:51,360 --> 00:10:53,480 So you can really customize it to your needs. 333 00:10:53,480 --> 00:10:54,640 Exactly. 334 00:10:54,640 --> 00:10:55,880 Now what about inflation? 335 00:10:55,880 --> 00:10:58,560 That's a big concern for a lot of investors these days. 336 00:10:58,560 --> 00:10:58,840 Yeah. 337 00:10:58,840 --> 00:11:00,120 Prices are going up everywhere. 338 00:11:00,120 --> 00:11:01,680 It's definitely on my mind. 339 00:11:01,680 --> 00:11:02,880 What can we do about that? 340 00:11:02,880 --> 00:11:05,840 Well, one way to potentially hedge against inflation 341 00:11:05,840 --> 00:11:07,880 is to invest in commodities. 342 00:11:07,880 --> 00:11:10,520 Commodities, like oil and gold. 343 00:11:10,520 --> 00:11:11,440 Exactly. 344 00:11:11,440 --> 00:11:14,720 Things like gold, oil, agricultural products, 345 00:11:14,720 --> 00:11:17,880 their prices tend to rise when inflation is high. 346 00:11:17,880 --> 00:11:18,800 OK, that makes sense. 347 00:11:18,800 --> 00:11:20,600 And I'm guessing there are ETFs for that. 348 00:11:20,600 --> 00:11:21,800 You bet. 349 00:11:21,800 --> 00:11:24,160 There are broad commodity ETFs that 350 00:11:24,160 --> 00:11:26,720 track a basket of different commodities. 351 00:11:26,720 --> 00:11:30,840 And there are also sector-specific commodity ETFs, 352 00:11:30,840 --> 00:11:34,160 like a gold ETF or an oil ETF. 353 00:11:34,160 --> 00:11:36,000 So you can really target your exposure. 354 00:11:36,000 --> 00:11:36,800 Exactly. 355 00:11:36,800 --> 00:11:38,760 Now it's important to remember that commodities 356 00:11:38,760 --> 00:11:41,200 can be volatile, so they're not for everyone. 357 00:11:41,200 --> 00:11:41,600 Right. 358 00:11:41,600 --> 00:11:43,760 But if you're looking for an inflation hedge 359 00:11:43,760 --> 00:11:45,880 and you're comfortable with a bit more risk, 360 00:11:45,880 --> 00:11:47,320 they could be worth considering. 361 00:11:47,320 --> 00:11:48,200 Exactly. 362 00:11:48,200 --> 00:11:50,760 And then another way to use ETF strategically 363 00:11:50,760 --> 00:11:54,320 is to gain exposure to specific sectors of the economy. 364 00:11:54,320 --> 00:11:57,160 Let's say you're bullish on the renewable energy sector. 365 00:11:57,160 --> 00:11:58,960 OK, yeah, that's a hot topic these days. 366 00:11:58,960 --> 00:12:01,600 So you could invest in a clean energy ETF. 367 00:12:01,600 --> 00:12:03,120 It holds a portfolio of companies 368 00:12:03,120 --> 00:12:07,120 involved in solar, wind, other forms of renewable energy. 369 00:12:07,120 --> 00:12:09,320 So instead of trying to pick individual stocks, 370 00:12:09,320 --> 00:12:11,760 I could just buy an ETF that covers the whole sector. 371 00:12:11,760 --> 00:12:12,280 Exactly. 372 00:12:12,280 --> 00:12:13,880 It's a convenient way to diversify 373 00:12:13,880 --> 00:12:15,200 within a particular sector. 374 00:12:15,200 --> 00:12:18,000 And speaking of sectors, remember that Shocking Truth 375 00:12:18,000 --> 00:12:19,720 podcast episode we talked about earlier? 376 00:12:19,720 --> 00:12:21,920 The one with the space exploration ETF. 377 00:12:21,920 --> 00:12:25,080 Yeah, they actually brought up energy ETFs and oil price 378 00:12:25,080 --> 00:12:27,480 fluctuations, which is a good example of how 379 00:12:27,480 --> 00:12:30,600 sector-specific ETFs can be affected by market forces. 380 00:12:30,600 --> 00:12:31,600 Oh, yeah, I remember that. 381 00:12:31,600 --> 00:12:34,880 So if oil prices go up, energy ETFs tend to do well. 382 00:12:34,880 --> 00:12:35,760 Exactly. 383 00:12:35,760 --> 00:12:40,160 But if oil prices crash, those ETFs are going to take a hit. 384 00:12:40,160 --> 00:12:44,040 It's a reminder that even though ETFs offer diversification, 385 00:12:44,040 --> 00:12:46,160 they're still subject to the same risks 386 00:12:46,160 --> 00:12:48,200 as the underlying assets. 387 00:12:48,200 --> 00:12:50,000 So it all comes back to understanding 388 00:12:50,000 --> 00:12:51,640 what's inside the ETF. 389 00:12:51,640 --> 00:12:52,440 Absolutely. 390 00:12:52,440 --> 00:12:53,960 And that's why research is so important. 391 00:12:53,960 --> 00:12:56,640 You need to know what you're buying and why you're buying it. 392 00:12:56,640 --> 00:12:58,760 OK, this is all making sense now. 393 00:12:58,760 --> 00:13:00,920 But it seems like a lot of responsibilities 394 00:13:00,920 --> 00:13:03,320 on the investor to do all this research 395 00:13:03,320 --> 00:13:05,000 and make informed decisions. 396 00:13:05,000 --> 00:13:08,200 What about people who don't have the time or the expertise 397 00:13:08,200 --> 00:13:09,640 to dig into all these details? 398 00:13:09,640 --> 00:13:10,560 That's a great question. 399 00:13:10,560 --> 00:13:11,800 And it's something I hear all the time. 400 00:13:11,800 --> 00:13:13,960 Not everyone wants to become a financial expert. 401 00:13:13,960 --> 00:13:14,240 Right. 402 00:13:14,240 --> 00:13:15,720 Some people just want to invest their money 403 00:13:15,720 --> 00:13:16,920 and get on with their lives. 404 00:13:16,920 --> 00:13:18,040 Exactly. 405 00:13:18,040 --> 00:13:21,040 And that's where a financial advisor can be really helpful. 406 00:13:21,040 --> 00:13:23,520 They can help you assess your financial situation, 407 00:13:23,520 --> 00:13:26,040 your goals, your risk tolerance, and then 408 00:13:26,040 --> 00:13:28,960 recommend investments that are appropriate for you. 409 00:13:28,960 --> 00:13:31,360 So it's like having a coach in your corner guiding you 410 00:13:31,360 --> 00:13:32,280 through the process. 411 00:13:32,280 --> 00:13:33,520 Exactly. 412 00:13:33,520 --> 00:13:35,240 And a good financial advisor can also 413 00:13:35,240 --> 00:13:38,160 help you navigate the complexities of ETFs, 414 00:13:38,160 --> 00:13:40,560 make sure you're making informed decisions. 415 00:13:40,560 --> 00:13:42,160 That makes a lot of sense. 416 00:13:42,160 --> 00:13:47,080 So research professional advice, it all sounds very sensible. 417 00:13:47,080 --> 00:13:50,040 But I'm sure our listeners are eager for some more specific 418 00:13:50,040 --> 00:13:53,000 tips on choosing the right ETFs. 419 00:13:53,000 --> 00:13:55,760 What do you say we dive into some actionable strategies? 420 00:13:55,760 --> 00:13:56,800 Sounds like a plan. 421 00:13:56,800 --> 00:13:57,720 Let's get into it. 422 00:13:57,720 --> 00:13:58,040 All right. 423 00:13:58,040 --> 00:13:58,920 So we've talked about a lot. 424 00:13:58,920 --> 00:14:01,400 We dove into some of the potential downsides of ETFs, 425 00:14:01,400 --> 00:14:02,880 talked about some of the benefits, 426 00:14:02,880 --> 00:14:04,640 even touched on getting some professional help, 427 00:14:04,640 --> 00:14:06,280 which is always a good idea. 428 00:14:06,280 --> 00:14:08,880 But now I'd like to just summarize everything. 429 00:14:08,880 --> 00:14:11,640 What are the key takeaways our listeners should remember? 430 00:14:11,640 --> 00:14:12,080 Sure. 431 00:14:12,080 --> 00:14:13,520 Let's make it actionable. 432 00:14:13,520 --> 00:14:17,880 Most importantly, remember, ETFs are tools, not some magic 433 00:14:17,880 --> 00:14:18,760 bullet. 434 00:14:18,760 --> 00:14:21,520 They can be really useful for building a diversified portfolio, 435 00:14:21,520 --> 00:14:22,960 but the market still matters. 436 00:14:22,960 --> 00:14:26,800 And so does really understanding what's inside each ETF. 437 00:14:26,800 --> 00:14:30,040 Yeah, that's story about the space exploration ETF. 438 00:14:30,040 --> 00:14:31,040 Really stuck with me. 439 00:14:31,040 --> 00:14:31,480 Yeah. 440 00:14:31,480 --> 00:14:34,400 It's a good reminder that marketing can be, well, 441 00:14:34,400 --> 00:14:35,600 very persuasive. 442 00:14:35,600 --> 00:14:37,480 We need to be sure to look beyond the hype 443 00:14:37,480 --> 00:14:39,240 and understand what we're actually buying. 444 00:14:39,240 --> 00:14:39,760 Exactly. 445 00:14:39,760 --> 00:14:42,320 Don't let those flashy names fool you. 446 00:14:42,320 --> 00:14:43,440 Do your research. 447 00:14:43,440 --> 00:14:46,320 Read that prospectus, even if it's boring. 448 00:14:46,320 --> 00:14:47,120 I know. 449 00:14:47,120 --> 00:14:49,160 Those prospectuses can be dry, but they're 450 00:14:49,160 --> 00:14:51,120 full of important information. 451 00:14:51,120 --> 00:14:54,200 The ETFs investment strategy, the holdings, fee structure, 452 00:14:54,200 --> 00:14:56,280 potential risks, it's all in there. 453 00:14:56,280 --> 00:14:58,640 So it's like our homework before we invest. 454 00:14:58,640 --> 00:15:00,320 And another thing that struck me was 455 00:15:00,320 --> 00:15:03,200 that more diversification isn't always better. 456 00:15:03,200 --> 00:15:03,560 Right. 457 00:15:03,560 --> 00:15:06,080 Strategic diversification is what we should aim for. 458 00:15:06,080 --> 00:15:08,040 Think about your goals, your risk tolerance. 459 00:15:08,040 --> 00:15:10,360 Each ETF should have a purpose in your portfolio. 460 00:15:10,360 --> 00:15:11,760 Don't just buy a bunch randomly. 461 00:15:11,760 --> 00:15:12,640 Have a plan. 462 00:15:12,640 --> 00:15:13,160 Yeah. 463 00:15:13,160 --> 00:15:15,200 Don't just check the diversification box 464 00:15:15,200 --> 00:15:16,040 and think you're done. 465 00:15:16,040 --> 00:15:16,720 Exactly. 466 00:15:16,720 --> 00:15:19,520 And another thing, those fees, ETFs are often 467 00:15:19,520 --> 00:15:22,200 marketed as low cost, which is great, 468 00:15:22,200 --> 00:15:23,600 but we still need to be mindful. 469 00:15:23,600 --> 00:15:23,840 Yeah. 470 00:15:23,840 --> 00:15:26,040 Those little percentages can add up over time, 471 00:15:26,040 --> 00:15:28,120 especially if the ETF isn't doing well. 472 00:15:28,120 --> 00:15:29,200 Exactly. 473 00:15:29,200 --> 00:15:30,880 Do some comparison shopping. 474 00:15:30,880 --> 00:15:34,000 A slightly higher expense ratio might be justified sometimes 475 00:15:34,000 --> 00:15:36,520 if the ETF has a good track record, 476 00:15:36,520 --> 00:15:39,080 a well-regarded manager, a solid strategy. 477 00:15:39,080 --> 00:15:41,160 And we also talked about systemic risk. 478 00:15:41,160 --> 00:15:42,360 That was a new one for me. 479 00:15:42,360 --> 00:15:43,960 The idea that ETFs could actually 480 00:15:43,960 --> 00:15:45,560 contribute to market instability. 481 00:15:45,560 --> 00:15:47,200 It's something to keep in mind, especially 482 00:15:47,200 --> 00:15:50,000 as more and more money flows into ETFs. 483 00:15:50,000 --> 00:15:52,440 It's like everyone trying to leave a concert at the same time. 484 00:15:52,440 --> 00:15:52,720 Right. 485 00:15:52,720 --> 00:15:54,480 It could get messy if everyone panics 486 00:15:54,480 --> 00:15:55,920 and tries to sell all at once. 487 00:15:55,920 --> 00:15:56,480 Exactly. 488 00:15:56,480 --> 00:15:59,760 Diversifying your portfolio, different asset classes, 489 00:15:59,760 --> 00:16:03,080 strategies, even different ETF providers can help with that. 490 00:16:03,080 --> 00:16:04,240 Spread the risk around. 491 00:16:04,240 --> 00:16:05,960 Don't put all your eggs in one basket, as they say. 492 00:16:05,960 --> 00:16:06,600 Exactly. 493 00:16:06,600 --> 00:16:08,880 So the main takeaway here, be informed. 494 00:16:08,880 --> 00:16:11,400 Do your research and make conscious choices 495 00:16:11,400 --> 00:16:12,720 about your investments. 496 00:16:12,720 --> 00:16:14,320 Knowledge is power. 497 00:16:14,320 --> 00:16:15,800 It's so true in investing. 498 00:16:15,800 --> 00:16:18,200 We need to understand what we're buying and why. 499 00:16:18,200 --> 00:16:18,600 Right. 500 00:16:18,600 --> 00:16:20,400 It's not just about charts and numbers. 501 00:16:20,400 --> 00:16:23,880 It's about your financial well-being, your dreams, 502 00:16:23,880 --> 00:16:25,160 your future. 503 00:16:25,160 --> 00:16:26,560 This has been a great conversation. 504 00:16:26,560 --> 00:16:29,160 I feel like I have a whole new perspective on ETFs. 505 00:16:29,160 --> 00:16:31,320 They're still a valuable tool. 506 00:16:31,320 --> 00:16:34,080 But now I'm approaching them with, I don't know, 507 00:16:34,080 --> 00:16:35,520 more awareness, I guess. 508 00:16:35,520 --> 00:16:36,360 I think that's great. 509 00:16:36,360 --> 00:16:39,000 And remember, learning is a journey. 510 00:16:39,000 --> 00:16:40,280 The market is always changing. 511 00:16:40,280 --> 00:16:41,280 New products pop up. 512 00:16:41,280 --> 00:16:42,120 New strategies. 513 00:16:42,120 --> 00:16:43,760 It's important to stay informed. 514 00:16:43,760 --> 00:16:44,840 Always keep learning. 515 00:16:44,840 --> 00:16:45,760 Absolutely. 516 00:16:45,760 --> 00:16:48,360 So to everyone listening, keep exploring. 517 00:16:48,360 --> 00:16:50,040 Don't be afraid to ask questions. 518 00:16:50,040 --> 00:16:52,320 Investing doesn't have to be scary. 519 00:16:52,320 --> 00:16:54,400 With the right knowledge and a bit of effort, 520 00:16:54,400 --> 00:16:56,120 you can take control of your finances 521 00:16:56,120 --> 00:16:57,600 and build the future you want. 522 00:16:57,600 --> 00:16:58,720 Well said. 523 00:16:58,720 --> 00:17:00,200 Great advice to wrap up on. 524 00:17:00,200 --> 00:17:01,800 We covered a lot today, folks. 525 00:17:01,800 --> 00:17:03,800 Remember, ETFs are powerful tools, 526 00:17:03,800 --> 00:17:05,920 but they need to be used wisely. 527 00:17:05,920 --> 00:17:07,040 Do your research. 528 00:17:07,040 --> 00:17:08,520 Be aware of the risks. 529 00:17:08,520 --> 00:17:09,960 Make informed decisions. 530 00:17:09,960 --> 00:17:12,440 And until next time, happy investing, everyone. 531 00:17:12,440 --> 00:17:14,800 That's it for this deep dive on ETFs. 532 00:17:14,800 --> 00:17:16,800 Thanks for listening.