I've bailed on individual stocks, but exchange traded funds still have my money. My attitude about individual stocks didn't change after the bear market a few years ago. If anything, I was making a lot of money on paper because I bought several stocks at the bottom.
However, in the past two years some stocks have plummeted and never recovered. I've had a completely shift in thinking.
According to a recent article by CNNMoney, I'm not the only individual investor who has a thing for ETFs. More than 80 percent of the investors Charles Swab surveyed said ETFs are "here to stay." The article reports 40 percent of those surveyed plan to invest more in ETFs next year.
Expecting a better return
In my experience, ETFs offer plenty of exposure to the stock market which means I have a better chance of making money over the long term. However, I don't have to worry about an individual stock in a company that goes bankrupt. I rather be invested in the pharmaceutical sector than place all my money on the stock in one particular pharmaceutical company that may go under.
Waiting for a new 401(k)
Like a lot of the people surveyed, I'm wondering why I can't get ETFs in my 401(k) plan through work. At this time, my only options are mutual funds and the unpopular life cycle funds based on a persons' target retirement date. Perhaps as more individuals investors inquire and demand ETFs in their company-sponsored retirement plans, things will change.
Getting tired of trading
Another benefit of owning ETFs, for me, is that I spend less money on trading commissions. That's because I tend to buy and hold an ETF for years as opposed to weeks or months. I am especially fond of the funds that pay a dividend. By reinvesting the dividends, I own more shares in the ETF. Overtime, I expect to do well.
Talking about my generation
I think ETFs are the "it thing" in investing for Generation X investors such as myself. We lived through the trauma of the technology bubble in the late 1990s just as we started investing as well as the Great Recession. In order for anyone from my generation to be able to retire comfortably in the future, we need positive returns on our investments rather than negative returns. I still get a laugh when I read financial articles about how people can expect a certain annual return on their stock investments. With an ETF, I'm not quite as cynical.
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