WEBVTT - Fast, Good, Cheap 0:00:06.040 --> 0:00:08.799 Hither and look into Trillions, the show about the Exchange 0:00:08.800 --> 0:00:11.360 created fund better known as the e t F. I'm 0:00:11.440 --> 0:00:15.120 Joel Webber. I'm the editor of Bloomberg Markets Magazines and Americvalcionist, 0:00:15.160 --> 0:00:18.799 an analyst with Bloomberg Intelligence. Now on Trillions, will be 0:00:18.840 --> 0:00:21.560 talking about the e t F, which everybody has access to, 0:00:22.079 --> 0:00:23.640 but a lot of people don't really know what they 0:00:23.680 --> 0:00:25.599 are or how to use them. And we're calling the 0:00:25.640 --> 0:00:28.640 show Trillions because of just how big e t f 0:00:28.720 --> 0:00:30.960 s are getting. There are a lot of ways to 0:00:31.000 --> 0:00:34.440 describe the growth of ETFs. I think the most astonishing 0:00:34.479 --> 0:00:36.280 way is this bit of data here, which is that 0:00:36.360 --> 0:00:38.440 it took e t f s eighteen years to get 0:00:38.440 --> 0:00:41.080 to one trillion in assets, but then it only took 0:00:41.120 --> 0:00:43.920 four years to get to two trillion. Now they've reached 0:00:43.920 --> 0:00:46.840 three trillion in just over two years, and they're headed 0:00:46.840 --> 0:00:51.199 to four in just under two years. So basically, these 0:00:51.240 --> 0:00:53.199 trillions are starting to stack up a little bit like 0:00:53.280 --> 0:00:55.959 Lego blocks. Right, Yeah, I mean, look, I mean you've 0:00:56.000 --> 0:00:59.040 got trillion after trillion coming in. But and it sounds like, oh, 0:00:59.120 --> 0:01:01.040 this is a new finance trill industry thing that they're 0:01:01.040 --> 0:01:03.040 making a lot of money, and it's not true. Unlike 0:01:03.080 --> 0:01:05.200 hedge funds and mutual funds, which do produce a lot 0:01:05.280 --> 0:01:08.600 of money for the financial industry, nobody's getting rich on ETFs. 0:01:08.640 --> 0:01:11.920 Inside the financial industry, the investors are where the trillions 0:01:11.959 --> 0:01:15.280 are because ETFs hardly charge anything, so ultimately those trillions 0:01:15.319 --> 0:01:17.320 are really investors taking their money back. And when we 0:01:17.360 --> 0:01:20.560 talk about trillions, though, there is some projected growth of 0:01:21.080 --> 0:01:25.040 how big E t F could get globally bullish case, 0:01:25.480 --> 0:01:27.640 how how how big are we talking? Okay, so the 0:01:27.760 --> 0:01:32.000 most not sober cases twenty trillion by the year five. 0:01:32.040 --> 0:01:34.880 That's from State Street. That's crazy because there's only four 0:01:34.920 --> 0:01:37.080 point five trillion globally, so that would take a lot 0:01:37.160 --> 0:01:40.399 of things to fall into place. The more sober projections 0:01:40.440 --> 0:01:43.360 have them at ten to sixteen trillion in the US 0:01:43.400 --> 0:01:46.520 alone in the next ten years. Again, that would take 0:01:46.560 --> 0:01:48.600 some step up years where you're seeing like literally a 0:01:48.680 --> 0:01:50.880 trillion flow in in a year. But this year we're 0:01:50.960 --> 0:01:53.840 almost gonna have five billion common, which is double almost 0:01:53.880 --> 0:01:56.360 the old record. So anyway you look at this, it 0:01:56.480 --> 0:01:59.720 starts to look like a hockey stick. And that growth 0:02:00.280 --> 0:02:02.520 is one of the things we're gonna be talking about here. 0:02:05.440 --> 0:02:07.400 So before we go any further, let's explain it the 0:02:07.480 --> 0:02:11.280 most basic level. What in eat F is, Eric, I 0:02:11.360 --> 0:02:12.919 know that you like to say that in eat F 0:02:13.240 --> 0:02:15.880 is like a marriage between a stock, which is a 0:02:15.960 --> 0:02:19.120 share in a publicly traded company, and an index fund, 0:02:19.320 --> 0:02:23.400 which is basically a compilation of all those different stocks. Yeah, exactly. 0:02:23.600 --> 0:02:25.840 I mean I teach the new classes on ets here 0:02:25.840 --> 0:02:28.600 to new hires, and everybody can identify with that. You 0:02:28.639 --> 0:02:30.320 show a picture of a stock and an index fund. 0:02:30.400 --> 0:02:33.080 And because look, a lot of products that people love 0:02:33.120 --> 0:02:35.880 and no came from two things getting combined, and so 0:02:36.000 --> 0:02:37.760 it makes sense. Sometimes you bring two things together, you 0:02:37.800 --> 0:02:41.600 get something better in the end. Yeah, basically, I mean, take, 0:02:41.680 --> 0:02:44.240 for example, the Reese's Peanut butter cup chocolate and peanut 0:02:44.280 --> 0:02:46.639 butter Right, I know you like those, God, I love this. Yeah. 0:02:46.880 --> 0:02:49.080 Or I mean your favorite band, Haul of Notates, Right, 0:02:49.440 --> 0:02:52.480 you got Haul and Oats. They are really bad individuals. 0:02:52.600 --> 0:02:55.360 You put them together, You've got like a twenty hit songs, 0:02:55.520 --> 0:02:59.440 so much better together than apart. Yeah, throwing the must fashion, 0:02:59.520 --> 0:03:02.600 You've got basically a gold mine. The mustache was just gold. 0:03:02.800 --> 0:03:06.440 So what are the advantages of the marriage in the 0:03:06.680 --> 0:03:09.359 context of an ETF. So the good stuff people like 0:03:09.400 --> 0:03:11.720 about stocks, right, You like it's easy to trade, there's 0:03:11.760 --> 0:03:15.480 price transparency, it's convenient. Right. The stuff that people like 0:03:15.560 --> 0:03:18.760 about index funds is they're cheap and they're diversified, so 0:03:18.800 --> 0:03:21.760 you get a lot of stocks in one shot. Let's 0:03:21.760 --> 0:03:25.520 actually dwell on that diversification idea for a little bit longer. 0:03:26.440 --> 0:03:30.680 I like to think of diversification like a carton of eggs. Right, 0:03:31.200 --> 0:03:34.600 so there's twelve. Maybe you drop that carton and you 0:03:34.680 --> 0:03:37.360 break one, but you haven't ruined the whole carton, right, 0:03:37.400 --> 0:03:40.160 you still have eleven others that are perfectly good. Is 0:03:40.200 --> 0:03:41.560 that a little bit like what an e t F is. 0:03:41.960 --> 0:03:43.600 My wife would still yell at me for the one 0:03:43.680 --> 0:03:47.760 that broke, but my issues aside. Yes, that's a great 0:03:47.760 --> 0:03:49.080 way to put it. I'm a fan of metaphors, and 0:03:49.120 --> 0:03:50.840 I think you just nailed it there. That's exactly what 0:03:50.920 --> 0:03:54.240 diversification does for you. So as simple as I think 0:03:54.280 --> 0:03:56.840 that sounds, I want you to try and explain it 0:03:56.960 --> 0:03:59.840 to our producer who we've hired, because she actually knows 0:04:00.080 --> 0:04:02.320 nothing about E t F s. Jordan, Can you hear us? 0:04:02.680 --> 0:04:05.520 That's right? I can hear you and I don't know anything, alright, 0:04:05.600 --> 0:04:10.760 E T S you know, Jordan is basically our audience. Yeah, totally. 0:04:11.160 --> 0:04:14.800 So so let's actually like try and explain it to Jordan. Eric, 0:04:15.800 --> 0:04:17.480 what's an example that you like to use when you're 0:04:17.480 --> 0:04:19.720 explaining what in the E t F is? Okay, so 0:04:20.160 --> 0:04:23.640 Jordan's let's let's create a scenario here. Okay, Let's say 0:04:23.920 --> 0:04:26.479 you live out in the suburbs, right, and you walk 0:04:26.520 --> 0:04:29.440 outside and you see somebody putting solar panels up on 0:04:29.480 --> 0:04:31.880 the roof across the street. Which, Jordan, you're from California. 0:04:32.440 --> 0:04:35.839 Maybe you've seen that before. I've seen it go down. Yeah, 0:04:36.240 --> 0:04:39.240 there's solar streets there, right, Yeah, So anyway, you see 0:04:39.279 --> 0:04:42.440 solar or something going up, and you said yourself, you know, 0:04:42.680 --> 0:04:44.560 I'm seeing a lot of this. This is something i'd 0:04:44.560 --> 0:04:48.200 like to invest in. Now, you don't even know any 0:04:48.279 --> 0:04:51.640 solar stocks. I don't. It's who does, right, So how 0:04:51.680 --> 0:04:53.120 would you go about doing that? You'd have to go 0:04:53.240 --> 0:04:55.240 research the stocks and all this Already you'll be like, 0:04:55.320 --> 0:04:57.960 you know what, I'm late for the bus? That the 0:04:58.000 --> 0:05:01.239 hell with it? Well? Eat, yes, make that very easy, 0:05:01.320 --> 0:05:04.120 because like take the solar energy E t F as 0:05:04.160 --> 0:05:06.400 a ticker Tan, which is one of the best parts 0:05:06.760 --> 0:05:10.240 about E T F are these crazy names. Not all 0:05:10.240 --> 0:05:11.800 the tickers are that good, but that that one's right 0:05:11.880 --> 0:05:14.560 up there. But Tan easy to remember. But look Tan. 0:05:14.760 --> 0:05:17.120 What it does is it serves up thirty solar stocks 0:05:17.160 --> 0:05:20.320 in one shot. Tan does all that work. You buy 0:05:20.400 --> 0:05:23.400 Tan and then you own those thirty stocks at once. 0:05:24.200 --> 0:05:27.159 And Tan's actually a really good example to explain diversification 0:05:27.240 --> 0:05:31.240 because there was a stock inside TAN called g T 0:05:31.360 --> 0:05:36.200 Advanced Technologies and it declared bankruptcy after Apple had decided 0:05:36.200 --> 0:05:38.440 not to use some of their glass and one of 0:05:38.440 --> 0:05:42.280 the iPhone six screens. So the stock drop in one day. 0:05:42.640 --> 0:05:45.120 So Jordan, if you had picked that stock, you would 0:05:45.160 --> 0:05:49.360 be sucking win basically, oh my gosh. But that only 0:05:49.560 --> 0:05:52.200 contributed to negative one percent of Tan's performance. So in 0:05:52.240 --> 0:05:54.160 other words, Tan barely felt it because it was just 0:05:54.279 --> 0:05:58.040 one of thirty six stocks. And that essentially is why 0:05:58.120 --> 0:06:00.919 you want to be diversified. So you avoided huge risk 0:06:01.440 --> 0:06:04.640 of a single stock blowing up, but you also gave 0:06:04.800 --> 0:06:08.679 something up to right. Yeah, So this is why stock 0:06:08.760 --> 0:06:11.120 picking will probably never die as an art form because 0:06:11.800 --> 0:06:15.360 Jordan's let's say you bought solar City a couple of 0:06:15.400 --> 0:06:19.039 years back, and that went up two in a year, 0:06:19.800 --> 0:06:24.000 and that year Tan only went up. So that's the 0:06:24.080 --> 0:06:27.320 downside is you aren't gonna sort of win the lottery 0:06:27.440 --> 0:06:29.840 if you pick the right stock. So it's almost like 0:06:30.040 --> 0:06:33.840 passive investing and diversification is you saying, you know what, 0:06:34.040 --> 0:06:36.599 I'd rather give up a potential home run to ensure 0:06:36.600 --> 0:06:39.680 I don't strike out, which passive investing. E t f 0:06:39.720 --> 0:06:43.440 s are mostly passive. It's also worth noting that that 0:06:43.600 --> 0:06:49.000 stock got booted out of TAN. Yes, so after declared bankruptcy, 0:06:49.040 --> 0:06:51.560 it was gone within a couple of days. That's the 0:06:51.640 --> 0:06:54.080 thing with e t s. They track indexes, and those 0:06:54.120 --> 0:06:57.240 indexes have all these rules that look for certain requirements. 0:06:57.279 --> 0:07:00.480 So if the stock gets weak, declares bank upsee, or 0:07:00.560 --> 0:07:04.000 just just starts lagging and becomes a bad actor, it's 0:07:04.000 --> 0:07:06.360 going to get kicked out of the index and replaced 0:07:06.360 --> 0:07:09.320 by a stronger up and comer. So there's a regeneration 0:07:09.440 --> 0:07:10.800 process to the index, so you don't have to do 0:07:10.840 --> 0:07:13.520 any work. So even though you picked it, it's not 0:07:13.640 --> 0:07:16.040 just those thirty six stocks in stuck in time. They 0:07:16.080 --> 0:07:19.480 actually change and regenerate over time, so that you have 0:07:19.560 --> 0:07:21.280 to worry about it. So, Jordan, do you have a 0:07:21.320 --> 0:07:25.120 little bit better sense of what ETFs are about? Now? Yeah, 0:07:25.320 --> 0:07:27.960 I can get an e t F in something I'm 0:07:28.000 --> 0:07:31.320 interested in, but I, you know, diffuse my risk because 0:07:31.360 --> 0:07:33.680 of how they're set up, but I also forego my 0:07:33.840 --> 0:07:36.840 chance that hitting it real big. There you go, she said, 0:07:36.920 --> 0:07:38.960 diffuse my risk. I think she knows more than we think. 0:07:39.960 --> 0:07:41.520 That's pretty good. Did you just pick that up from 0:07:41.560 --> 0:07:45.520 our little discussion? Wow, Okay, we're on the right track, quick, learner. 0:07:46.640 --> 0:07:49.880 So Jordan's understands what in e F is, and she 0:07:50.000 --> 0:07:53.440 understands what TAN is. But Tan's like a really small 0:07:53.720 --> 0:07:56.840 niche player here, right, Like, let's talk about like the 0:07:57.000 --> 0:08:00.320 rest of the E t F landscape. Yeah, totally Tan is. Yeah, 0:08:00.400 --> 0:08:02.360 niche is the right word. But it's just good for 0:08:02.440 --> 0:08:05.000 a scenario, you know, solar energy everybody. And she, you know, 0:08:05.240 --> 0:08:07.200 Jordan's a millennial, so I figured she'd respond to that 0:08:07.240 --> 0:08:10.360 and she did. Um anyway, but most of the money 0:08:10.920 --> 0:08:13.520 is going into what we call in the analyst world, 0:08:13.560 --> 0:08:15.960 plain vanilla e t F s. TAN would be like 0:08:16.200 --> 0:08:18.600 Rocky Road, a little more exotic, a little more volatile. 0:08:18.640 --> 0:08:20.600 But most of the money goes into stuff like e 0:08:20.720 --> 0:08:23.000 t s that just basically tracked the SMP five hundred. 0:08:23.560 --> 0:08:25.520 There's a couple of those, Yeah, there's a couple of 0:08:25.600 --> 0:08:30.520 those called like Spy, Spy, Spider has one, black Rock 0:08:30.600 --> 0:08:32.800 has one. Their brand is called I Shares, and Vanguard 0:08:32.880 --> 0:08:35.880 has one. Most people out there probably no Vanguard at 0:08:35.920 --> 0:08:38.640 this point. Vanguard's a pretty big player in the ETF space. 0:08:38.720 --> 0:08:41.680 They are only plain vanilla. Black Rock does a little 0:08:41.679 --> 0:08:43.880 of both, and the same with State Street. But like, 0:08:44.000 --> 0:08:47.839 take the SMP five majority tfs. They collectively account for 0:08:47.960 --> 0:08:51.040 nearly one five of all e t F sets. That's 0:08:51.040 --> 0:08:54.480 how popular they are. And there's f so just buying 0:08:54.520 --> 0:08:58.600 the SNP what these things are doing, I mean, that's 0:08:58.679 --> 0:09:00.679 ultimately that's what Warren Buffett as to do. I mean, 0:09:00.800 --> 0:09:04.200 just buying the SMP five hundred is arguably the most 0:09:04.280 --> 0:09:07.280 popular investment move right now. And are these buy and 0:09:07.400 --> 0:09:11.960 hold investments or are people trading them? Good questions. So Spy, 0:09:12.160 --> 0:09:14.120 which is the Spider product that was the first TTF, 0:09:14.480 --> 0:09:16.439 that one has a lot of liquidity, trades a lot, 0:09:17.000 --> 0:09:18.839 so that one's used a little more from like for 0:09:18.960 --> 0:09:21.160 traders going in and out of the SMP five hundred 0:09:21.600 --> 0:09:23.520 black Rock and Vanguards are a little more used by 0:09:23.559 --> 0:09:26.599 buy and hold investors. They're also a little cheaper, you know, 0:09:26.679 --> 0:09:28.719 the low expense ratio attracts more of the buy and 0:09:28.760 --> 0:09:31.760 hold investors. But ultimately all three could be used to 0:09:31.800 --> 0:09:34.520 hold twenty years if you wanted, or twenty minutes. And 0:09:34.640 --> 0:09:38.560 how cheap are these things? And let's kind of use 0:09:38.600 --> 0:09:42.520 a real number. I'm gonna say I have, right, sure, 0:09:42.840 --> 0:09:44.800 how much does this actually cost me? Right? So, say 0:09:44.840 --> 0:09:46.760 you have ten thousand dollars, If you put that into 0:09:46.960 --> 0:09:50.319 s p Y, they would basically take out nine dollars 0:09:50.400 --> 0:09:52.520 and fifty cents a year. If you put it into 0:09:52.920 --> 0:09:54.600 v O O, which is the Vanguard, they take out 0:09:54.640 --> 0:09:56.720 five bucks a year. And if you put an IVV, 0:09:56.800 --> 0:09:58.800 they take out four bucks a year. So talking about 0:09:59.240 --> 0:10:02.320 you know, a slice of pizza, you know, two slices 0:10:02.320 --> 0:10:04.679 of pizza. Maybe not in penn station, but yeah, it 0:10:04.679 --> 0:10:09.480 depends on where anyway, that's true. So for a couple 0:10:09.480 --> 0:10:13.120 of slices of pizza, you can have the whole entire 0:10:13.200 --> 0:10:17.599 stock market. That's a revolutionary moment totally. That That is 0:10:17.679 --> 0:10:21.640 why these are powerful, you know, explosive tools that are 0:10:21.800 --> 0:10:23.640 sweeping the nation literally, so you don't have to go 0:10:23.720 --> 0:10:28.400 out there and buy individual stocks and then try and 0:10:28.520 --> 0:10:32.559 like manage that portfolio. You get one thing. Yeah, And 0:10:33.000 --> 0:10:35.040 you know, when I wrote this book on et f s, 0:10:35.600 --> 0:10:37.800 the word that kept coming back to when I spoke 0:10:37.800 --> 0:10:39.719 to a lot of people about the advantages was convenience. 0:10:40.160 --> 0:10:43.040 And ultimately I went through advantages of ETFs and at 0:10:43.040 --> 0:10:45.400 the end, I'm like, it's really convenience. I mean, cost 0:10:45.480 --> 0:10:48.120 is a big one, but you know, people love things 0:10:48.200 --> 0:10:51.000 that are convenient. Any business if you can serve up 0:10:51.040 --> 0:10:53.199 convenience and make life easier. I mean, look at Amazon. 0:10:53.559 --> 0:10:54.920 I mean it's not like anything to get on there 0:10:54.960 --> 0:10:57.800 you can't get anywhere else. It's just convenient. And ETFs 0:10:57.880 --> 0:11:02.320 ultimately provide convenience in multiple times over. So we talked 0:11:02.320 --> 0:11:05.240 about the plain vanilla side of the et F world. 0:11:05.760 --> 0:11:10.000 What are some other sides? Right? So you got bonds, right, 0:11:10.080 --> 0:11:12.640 So bond markets a huge thing, and there's I would 0:11:12.679 --> 0:11:15.760 consider a few plain vanilla bond e t f s, 0:11:15.920 --> 0:11:17.640 some that just give you like all bonds sort of 0:11:17.760 --> 0:11:20.679 all collectively. Then there's things that are a little more risky, 0:11:20.760 --> 0:11:22.920 like high yield debt. You know, some people call them 0:11:23.000 --> 0:11:25.200 drunk bonds. There's an e t FS for that. Then 0:11:25.240 --> 0:11:29.360 you've got areas like commodities, a big et F in 0:11:29.400 --> 0:11:32.679 the commodity spaces g l D which basically, you know, 0:11:32.840 --> 0:11:36.160 you think that some hundred is convenient. G LD essentially 0:11:36.720 --> 0:11:39.440 gives you exposure to a bunch of bars of gold 0:11:39.520 --> 0:11:42.400 sitting in a storage facility. So it's like having a 0:11:42.480 --> 0:11:45.000 way to own goal with having to pay insurance, you know, 0:11:45.240 --> 0:11:48.000 or to worry about anybody stealing it. Own a vault, right, 0:11:48.200 --> 0:11:50.200 No need to own a vault. You can just own 0:11:50.240 --> 0:11:52.320 a little bit of E t F. Yeah. I mean 0:11:52.360 --> 0:11:55.720 you're essentially buying shares in physically back gold. So there's 0:11:55.720 --> 0:11:57.880 a there's basically in g l D s case the 0:11:57.960 --> 0:12:00.319 gold is stored in London, there's a guy there with 0:12:00.360 --> 0:12:03.440 a machine gun, probably like standing outside the vault. Um, 0:12:03.480 --> 0:12:05.520 I'm not sure if that's true, but I imagine that's true. 0:12:05.520 --> 0:12:07.760 But anyway, it's in a bank. It's a good mental image. 0:12:07.800 --> 0:12:10.160 Let's just say it's secure. Okay. You know this isn't 0:12:10.240 --> 0:12:12.199 like you know, the Pink Panther, where a group of 0:12:12.240 --> 0:12:13.720 bandits are going to be able to get in there 0:12:13.760 --> 0:12:16.280 and steal it. But ultimately, and I hope one day 0:12:16.320 --> 0:12:18.560 we can go look at the gold. You know, now 0:12:18.640 --> 0:12:20.520 that we're yeah we have this podcast, maybe I'll let 0:12:20.600 --> 0:12:22.400 us look look at it and then we can interview 0:12:22.640 --> 0:12:28.920 the gold. Yeah, it's going to be. So that's all 0:12:29.880 --> 0:12:35.319 domestic stuff here in the US. What about international internationals? 0:12:35.559 --> 0:12:38.280 Growing area definitely, And what I find interesting what ets 0:12:38.280 --> 0:12:40.800 internationally is a lot of them. I mean they all 0:12:40.920 --> 0:12:43.599 hold local shares in local markets. I mean used to 0:12:43.840 --> 0:12:47.080 need a broker to get say like local Egyptian stocks, 0:12:47.240 --> 0:12:49.679 right E t f s do that for you. So 0:12:49.800 --> 0:12:54.040 even institutions use ets international play, but mostly the big 0:12:54.160 --> 0:12:58.600 plain Venila international ones are for example, international developed, which 0:12:58.679 --> 0:13:01.400 essentially is the countries that are more developed, like European 0:13:01.480 --> 0:13:04.839 countries in Japan. They all package that in one E 0:13:04.960 --> 0:13:07.600 t F Vanguard has a couple, black Rock has a couple. 0:13:08.280 --> 0:13:11.199 Then you could look at something like emerging markets. Those 0:13:11.240 --> 0:13:13.280 little more risky, but you package all of them together. 0:13:13.880 --> 0:13:17.920 You get countries like China, right, Brazil, um in some 0:13:18.040 --> 0:13:20.400 of them South Korea, and they put all those together, 0:13:21.080 --> 0:13:23.000 and then you can go further out there's frontier market 0:13:23.040 --> 0:13:26.079 e TF. Those are countries that are like on the 0:13:26.320 --> 0:13:30.400 like JV of development and that they're not even emerging yet. 0:13:30.440 --> 0:13:32.960 And the difference between the emerging markets and that frontier 0:13:33.040 --> 0:13:36.559 markets is pretty amazing. For the countries that are in them. 0:13:37.000 --> 0:13:39.120 You've countries that are like, you know, really out there, 0:13:39.160 --> 0:13:42.240 like Kenya and Vietnam, and there's ets that serve that up. 0:13:42.280 --> 0:13:44.719 And there's there's et F T tracks Africa, like all 0:13:44.760 --> 0:13:47.599 the stocks that are in African countries. So you go 0:13:47.720 --> 0:13:50.160 down the list, I mean you throw out a country, 0:13:50.679 --> 0:13:51.920 I can tell you how to play with. The t 0:13:52.120 --> 0:13:55.480 S is basically the whole the whole world pictures like 0:13:55.520 --> 0:13:58.280 a rememberable the game risk, you know, you put your 0:13:58.320 --> 0:14:02.160 little men all over or propoily whatever. The whole world 0:14:02.280 --> 0:14:05.000 has been e t F I. So if you want 0:14:05.040 --> 0:14:06.959 to say France, how do you want it? You want 0:14:07.160 --> 0:14:10.040 individual France ETF? Do you want a Eurozone e t F. 0:14:10.440 --> 0:14:12.640 Do you want a Pan European et F? Or do 0:14:12.640 --> 0:14:15.120 you want that in international developed? So it goes from 0:14:15.200 --> 0:14:18.400 more you know, very narrow, to more general and everything 0:14:18.480 --> 0:14:20.600 in between. And now they'll do ones where it's like, 0:14:20.600 --> 0:14:22.440 oh we'll give you French stocks, but will wait them 0:14:22.480 --> 0:14:25.560 by their fundamentals. So I think when the average investor, 0:14:26.040 --> 0:14:30.120 here's something like E t F. Not only do they 0:14:30.160 --> 0:14:32.520 get a little confused, but they also get a little 0:14:32.880 --> 0:14:37.680 scared because the financial industry is really good at coming 0:14:37.760 --> 0:14:41.240 up with scary acronyms, things like C d O S 0:14:41.760 --> 0:14:43.960 that brought down almost brought down the world with the 0:14:44.000 --> 0:14:46.480 financial crisis. So they hear E t F and it's 0:14:46.560 --> 0:14:49.720 yet one more thing. So, even though this thing has 0:14:50.120 --> 0:14:54.160 grown so rapidly, I think there's still this apprehension around 0:14:55.360 --> 0:14:58.080 here's this thing from the financial world. Should I trust it? 0:14:58.840 --> 0:15:01.560 That's a completely fair feeling for people to have. And 0:15:01.680 --> 0:15:04.480 I feel the same way. I think the thing with 0:15:04.640 --> 0:15:06.800 E t F though, is and again, like you said, 0:15:06.880 --> 0:15:09.800 this is this acronym really the greatest name ever? Maybe not, 0:15:10.000 --> 0:15:13.200 But the F is key. It's a fund, it's a 0:15:13.280 --> 0:15:15.640 mutual fund. In fact, E t F s are registered 0:15:15.680 --> 0:15:19.520 with the SEC under the same act as mutual funds. 0:15:19.880 --> 0:15:21.720 You know, some people call them mutual funds with benefits. 0:15:22.320 --> 0:15:26.080 And ultimately that's important understand because they are not derivatives. 0:15:26.160 --> 0:15:28.440 They are actually funds. They just happen to trade on 0:15:28.440 --> 0:15:31.000 the exchange their shares do. And so I think that's 0:15:31.040 --> 0:15:34.040 a key point to feeling safer about using them is 0:15:34.080 --> 0:15:38.120 that they are fiduciary vehicles approved by the SEC. Although 0:15:38.160 --> 0:15:40.320 I should just sort of evolve what I just said 0:15:40.360 --> 0:15:43.360 to say that there are some types of products at 0:15:43.400 --> 0:15:47.760 the fringes. Right. What I just described is basically there's 0:15:47.800 --> 0:15:50.480 some stuff at the fringes. Stuff that say tracks oil 0:15:50.560 --> 0:15:55.720 futures or three times leverage dtfs. Those are don't they 0:15:55.760 --> 0:15:57.320 don't have much in assets, but they do get a 0:15:57.320 --> 0:16:00.080 lot of attention. But those are not those are not 0:16:00.200 --> 0:16:02.840 registered under the forty Act. Those would be called exchange 0:16:03.240 --> 0:16:06.520 vehicles or or you know e t p s. Those 0:16:06.560 --> 0:16:08.320 are a little different, and they sort of got under 0:16:08.400 --> 0:16:10.840 the same sort of tent of e t F. But 0:16:10.960 --> 0:16:14.320 ultimately I think for most investors they're going to use these, 0:16:14.480 --> 0:16:16.080 you know, the plain vanilla e t F to get 0:16:16.120 --> 0:16:19.520 exposures that are more normal. But you know, you will 0:16:19.560 --> 0:16:22.480 find some investors will be curious and maybe go outside 0:16:22.480 --> 0:16:23.960 of that. But those are the areas where I think, 0:16:24.080 --> 0:16:27.360 especially this podcast will let you know why there's some 0:16:27.800 --> 0:16:31.480 areas and ETFs that are dangerous where you could lose money. 0:16:31.520 --> 0:16:34.400 I mean, I'm developing a rating system and I talked 0:16:34.400 --> 0:16:36.520 about this in my book, where if you rated e 0:16:36.560 --> 0:16:39.360 t f s like movies, you'd ultimately find there are 0:16:39.440 --> 0:16:41.680 some R rated e t s. The bulk of the 0:16:41.760 --> 0:16:43.600 assets and the bulk of the e t s would 0:16:43.600 --> 0:16:45.840 be P, G and G, but they do go into 0:16:45.840 --> 0:16:47.640 some areas that a little more risky. And this is 0:16:47.680 --> 0:16:50.720 where the buyer beware thing comes in, because you ultimately 0:16:51.080 --> 0:16:52.960 sort of need to know what you're buying. And the 0:16:53.120 --> 0:16:56.320 risk here is that everything kind of looks the same. Yeah, 0:16:56.440 --> 0:16:58.840 and the idea that the whole market has become so 0:16:59.000 --> 0:17:00.880 easy to buy, no matter what corner of the market 0:17:00.920 --> 0:17:02.880 you want, it's easy to buy is clicking buy and 0:17:03.000 --> 0:17:07.160 Microsoft shares. I agree, there is some degree of maybe 0:17:07.200 --> 0:17:11.240 that's made stuff that's more dangerous seem less dangerous. But 0:17:11.320 --> 0:17:14.000 again I take a step back from this because if 0:17:14.040 --> 0:17:15.480 you look at the assets and e t F that 0:17:15.600 --> 0:17:19.359 three trillion, almost every dime of it is in stuff 0:17:19.440 --> 0:17:22.040 that is not dangerous. It's just you know, plain van 0:17:22.200 --> 0:17:25.080 It's like stuff mutual funds hold. But yeah, at the fringes, 0:17:25.160 --> 0:17:28.000 there are some products that are beloved by people who 0:17:28.080 --> 0:17:31.080 use them, you know, stuff the tracks, the vix uh 0:17:31.119 --> 0:17:34.720 stuff features. Yeah, there's some there's some stuff that you 0:17:34.800 --> 0:17:37.040 know you might not even heard of that eat that 0:17:37.200 --> 0:17:40.479 some ETFs track. But ultimately I think that's why it's 0:17:40.520 --> 0:17:42.480 important to look at those. But they are not they're 0:17:42.520 --> 0:17:46.000 the exception, not the norm. So ultimately et fs just 0:17:46.080 --> 0:17:48.960 made things really easy because you can do all these 0:17:49.040 --> 0:17:50.960 things that used to be really complicated and now you 0:17:51.000 --> 0:17:53.840 can just do it on a button on your smartphone. 0:17:54.240 --> 0:17:56.600 You know. Yeah, it kind of reminds me. There's a 0:17:56.640 --> 0:17:59.399 phrase out they're fast, good, cheap, and they say that 0:17:59.480 --> 0:18:01.119 as a con numor you can only get two of 0:18:01.160 --> 0:18:03.919 those three things, right, So something's fast and good, it's 0:18:03.960 --> 0:18:06.240 not cheap. It's cheap and fast it's not good, and 0:18:06.320 --> 0:18:09.520 so on. And I think, you know, I feel like 0:18:09.720 --> 0:18:11.320 the you know, there's a couple of things that that 0:18:11.520 --> 0:18:13.920 basically blow that rule away and give you all three 0:18:13.920 --> 0:18:17.200 at once. So one thing just personal to me is 0:18:17.280 --> 0:18:20.840 Vietnamese restaurants. They really are fast, good, and cheap and 0:18:20.960 --> 0:18:22.879 E T F S. I. I do believe they deliver 0:18:23.040 --> 0:18:25.840 all three of those things in almost every case, not 0:18:26.000 --> 0:18:29.080 every but that to me again, and this goes back 0:18:29.119 --> 0:18:30.480 to when I got them in two thousand and six. 0:18:30.760 --> 0:18:32.840 After you start sniffing around them and you kick the 0:18:32.920 --> 0:18:35.119 tires on them, you realize, you know, they're they're a 0:18:35.160 --> 0:18:37.520 special kind of structure. So, Eric, we've talked about the 0:18:37.560 --> 0:18:40.760 growth of ETFs, We've talked about what these things look 0:18:40.840 --> 0:18:43.040 like and what's in them. We've talked about the risks. 0:18:43.840 --> 0:18:48.280 We broke it down for Jordan's where are we going? 0:18:49.960 --> 0:18:52.200 This is a question I ponder a lot. I think, 0:18:52.359 --> 0:18:54.280 you know, when you look at the future of the whole, 0:18:54.400 --> 0:18:57.240 the whole enchilada, right, I think you're just gonna see 0:18:57.320 --> 0:19:00.680 more and more investors demanding free exposure based or low 0:19:00.760 --> 0:19:02.320 low cost to the point where it's free. So I 0:19:02.359 --> 0:19:05.800 think one evolutionary line of e t F growth is 0:19:05.880 --> 0:19:08.040 going to be what we call a race to the bottom, 0:19:08.119 --> 0:19:12.040 and the bottom being good here means zero fees. Right now, 0:19:12.200 --> 0:19:13.840 like we said, e t F s are three, four 0:19:13.920 --> 0:19:16.160 or five, maybe six basis points, especially in the plane 0:19:16.240 --> 0:19:18.919 vanilla categories. You know those are being driven down. They 0:19:18.960 --> 0:19:22.840 were fourteen basis points ago. Yeah. In fact, they did 0:19:22.880 --> 0:19:24.639 a study over at et f dot com that showed 0:19:24.680 --> 0:19:27.639 that the cheapest the e t F portfolio drops by 0:19:27.680 --> 0:19:29.359 a basis point of year. So right now it's at 0:19:29.400 --> 0:19:31.400 point oh six percent. I mean, you can get a whole, 0:19:31.440 --> 0:19:34.760 fully diversified portfolio ets for point six percent all in 0:19:35.280 --> 0:19:37.120 that drops a basis point of year, So that puts 0:19:37.200 --> 0:19:40.120 us on track to have free exposure in the next 0:19:40.320 --> 0:19:42.719 five or six years. And I think most people think 0:19:42.720 --> 0:19:45.439 that's going to happen, and that's a beautiful thing. I mean, 0:19:45.520 --> 0:19:47.919 think about that concept. That is going to up end 0:19:47.960 --> 0:19:51.640 the entire financial system. You think, you know Bernie Sanders, 0:19:52.119 --> 0:19:54.960