Sep 10, 2015

…Before 2005, the expense ratio of all previously issued ETFs averaged 0.4 percent, according to Morningstar. Since 2005, the average expense of new funds has jumped to over 0.6 percent, and some new exchange-traded products are charging over 1.0 percent in fees annually. Then there is a thing called “Tracking Error”:  ETF managers are supposed to keep their funds’ investment performance in line with the indexes they track. That mission is not as easy as it sounds. There are many ways an ETF can stray from its intended index. That tracking error can be a cost to investors. Throughout the trading day, the spread between underlying securities and the ETF can be signifcant. For example, on August 24 when the market opened down 5.3%, the Vanguard Dividend Appreciation fund VIG, was down a whopping 38% for more than an hour. Steve and Sinclair breakdown some of the pros and cons of ETFs. In the Q & A, Steve reviews a more effective approach to reducing risks on the bond side of the portfolio.