Weighing the advantages of an all-ETF portfolio

In the last five years, the public's affinity for ETFs raised assets under ETF management by 152 percent, to $2 trillion, up from $793 billion. Mutual fund assets only rose 53 percent during the same period.

There's a natural progression in the way the public responds to innovation. Something that first seems like a mere novelty becomes an interesting new niche, then a great idea and then, "How did we ever get along without this?"

In financial services, exchange-traded funds are somewhere around the third or fourth stage, between new niche and great idea. ETFs attracted more net investment last year ($239 billion) than did mutual funds ($225 billion), according to data from Morningstar. Five years earlier the net inflow into mutual funds was more than triple the net amount invested in ETFs.


Brendan McDermid | Reuters

In the last five years, the public's affinity for ETFs raised assets under ETF management by 152 percent, to $2 trillion, up from $793 billion. Mutual fund assets only rose 53 percent during the same period.

Faster and cheaper information system infrastructure has helped the growth of ETFs. In my view, ETF portfolios will be the inevitable default for investors in the years to come because they are lower cost, more transparent and offer greater liquidity and tax advantages than mutual funds. Already, the increasing number of assets invested with automated investing services, which use all-ETF portfolios, underscores this shift.

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