Menu Close

Jack Bogle Is Sounding the Alarm on ETFs – It’s Even Worse Than He Says

This is a syndicated repost published with the permission of Money Morning. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Passive investing’s champion and biggest cheerleader over the years, Jack Bogle, founder and retired CEO of The Vanguard Group, has changed his tune.

etfsDon’t get me wrong – he still believes that being in “the market” over the long haul is still the best way to build wealth.

But he’s worried about the effect ETFs are having on the stock market. While we think Bogle is onto something here, it gets even worse for passive investors, too…

Bogle sounded the alarm in a recent Wall Street Journal article, saying that the top three passive funds are nearing effective control of U.S. stocks. In short, the popularity of passive investing is making the top ETFs the largest shareholders of many public corporations.

Such concentration of stock ownership is not good for the industry or even the nation. Bogle concludes that “a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation.”

Free Book: The secrets in this book helped one Money Morning reader make a $185,253 profit in just eight days. wa****************@gm***.com" target="_blank" rel="nofollow noopener">Learn how to claim your copy here

Think about that. Ownership of most of corporate America in the hands of a few big institutions.

Why is that bad? An oligarchy – a small group of people having control of a country, organization, or institution – does not allow for a truly free market. And those who control the production of goods and services can control the destiny of the country. You can see where this can go.

Bogle offers a number of fair-minded solutions to diluting the influence of ETFs on corporate governance.

But there’s another danger lurking behind ETFs, one that could put a serious dent in your retirement plans if you’re not careful.

That’s especially true during sell-offs or bear markets…

Why Passive Investing Isn’t All It’s Cracked Up to Be

Passive investing offers investors average market returns. And when the market starts to take a beating, like what happened in December, passive investors lose too.

Investors need to do some work to understand when the market offers truly great value and when it is just too risky.

Wall Street loves to travel in herds, and their collective mantra of buying and holding a low-cost index or ETF smacks of complacency. But resigning yourself to average returns, even negative returns like the 10% haircut the market took in December, isn’t going to get you to your retirement goal. That’s especially true when everyone else is following the herd.

Money Morning Special Situations Strategist Tim Melvin sees the fatal flaw to this strategy.

Tim says too many investors believe passive investing is “safe.” All they need to do is buy and hold, and they’ll come out on top.

This just isn’t true.

Depending on when you buy in, you could get pummeled, despite what looks to be a sound investment philosophy. Those investors who bought in during the late stages of the 1990s bull market look at life a bit differently than those who bought in the early stages of the 2008 financial crisis.

Think about it. The Dow is up just 116% since June 1999. But it’s up 231% since March 2009. When you buy makes a huge difference for your returns.

And the reality is that over the past 20 years, the market only offered a 4% annual return. While there were three huge bull markets in that time, there were two brutal bear markets where prices got cut in half.

When you bought into your “safe” Dow Jones ETF decided whether you made money or barely broke even.

But active investors can control not only when they enter or exit a certain investment, but precisely which investment they are going to make…

How the Rich Get That Way

The wealthiest investors do not make regular contributions to their ETF accounts with payroll deductions. They wait until the market presents high-quality companies at bargain bin prices, and they buy them to hold for a long, long time.

Do you think Warren Buffett is worried about the $85 billion his holdings in Apple Inc. (NYSE: AAPL) have lost since the middle of last year? Not a chance. He did not buy it because of how it might perform in any one quarter. He bought it with a time horizon of 10 to 20 years, and so as long as it is a leader and has great management and a sustainable business model, he’s in.

That’s how his company, Berkshire Hathaway Inc. (NYSE: BRK.B), demolished passive investors’ returns. While a passive investor who bought the market in June 1999 barely doubled their money over the last 20-year period, Buffett quadrupled his shareholders by knowing not just when to buy and sell, but what to buy and sell.

And that’s the difference between the retirement of your dreams and staying in the workforce another five years.

Here’s exactly how to do it for yourself…

The Hidden Key to an Undefeated Track Record

In this must-see footage, one man is revealing the key to exactly how he’s closed out 32 winning trade recommendations IN A ROW…

… how he averages a 70% profit on each of his closed trade recommendations…

… and most importantly, how you could NEVER have to lose money on a stock again – and become filthy rich in the process.

wa****************@gm***.com" target="_blank" rel="nofollow noopener">Click here now…


To get full access to all Money Morning content, click here

About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and visitors become smarter, more confident investors.

Disclaimer: © 2019 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

The post Jack Bogle Is Sounding the Alarm on ETFs – It’s Even Worse Than He Says appeared first on Money Morning – We Make Investing Profitable.

Join the conversation and have a little fun at If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Follow by Email

Discover more from The Wall Street Examiner

Subscribe now to keep reading and get access to the full archive.

Continue reading