Jonathan Clements

Yesterday I caught a show on PBS called WealthTrack with Consuelo Mack. One of her guests was Jonathan Clements who writes about mutual funds for the Wall St Journal. He was on the show to talk about Exchange Traded Funds. What do you know, he doesn't like them?

I found his part of the show to be a waste of time. ETFs have drawbacks, he pointed out the commission that must be paid (true, this is a negative), he also said the ability to trade interday is an unnecessary feature because you should be holding them for extremely long periods of time. Another ding against them is that because they can be traded interday it encourages people to trade more frequently. That last one did not come up in the show but is one I have read before.

Clements' take away on the show was that ETFs are not the best way to go for most investors.

I'm not sure how a blanket statement like that can apply so broadly to such a big population. It is worth repeating my view on this. ETFs are a tool. OEFs are a tool. Any type of product you can find is a tool that may or may not be right for you to capture whatever part of the market you are considering.

Further any argument against a product because of a flaw in human behavior (like trading too much) seems silly. Anyone who manages a portfolio (their own for other people) needs to have some humble introspection about the weaknesses. If an investor cannot resist the urge to trade ETFs more frequently than their goals and volatility tolerance calls for, then yes, they should not own any but that is more about the person than the product.

There is a funny line from some movie or TV show about fearing the unfamiliar. I think Mr. Clements was making an argument in favor of staying afraid of the unfamiliar. I wasn't surprised because I know his writing but then again I was surprised that a personal finance writer is not working toward trying to explore the manner in which ETFs can benefit do-it-yourselfers and that he isn't more interested in a balanced view.