In this interesting article from Index Universe, John Bogle points out that investors are not acting in their own best interests when they trade ETFs. First, he phrases it as ETFs aren’t in the best interests of investors. Then he amends it to say that really investors aren’t acting in their own best interests.
In truth, these results, which show ETF investor results lagging mutual fund investor results, have nothing to do with the vehicle and everything to do with investor time horizons and emotional trading. ETFs are simply easier to trade, which allows people to either fine tune their entries and exits, or to completely muck it up.
The evidence is largely in favor of the “muck it up” theory. I’m sure investors are trying to do better by trading, but they are objectively making their results worse. This is the result of trading emotionally and not having a systematic method for executing your plan.
