We Study Billionaires - The Investor’s Podcast Network TIP394: How to invest in ETFs w/ Cullen Roche
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Nov 7, 2021 Cullen Roche, investment expert and CIO of Disciplined Funds, returns to share his ETF investing wisdom. He explains why there's no such thing as truly passive investing, detailing the mechanics of ETFs and their tax advantages. Cullen emphasizes the importance of selecting an appropriate ETF strategy tailored to personal goals and discusses the risks of solely relying on backtesting. He also covers the nuances of ETF costs and the implications of interest rates on investing, offering insights for both retail and institutional investors.
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ETF Tax Efficiency
- ETFs offer tax advantages over mutual funds through a creation/redemption process involving in-kind transactions.
- This gives shareholders control over tax liability, unlike mutual funds where capital gains can be unpredictable.
Beyond Expense Ratios
- Consider both gross and net expense ratios when evaluating ETF costs, as well as bid-ask spreads and premiums/discounts.
- Be mindful of premiums or discounts to NAV, especially with illiquid underlying assets, where these can be significant.
Backtesting Pitfalls
- Be skeptical of impressive backtested ETF results, as past performance doesn't guarantee future success.
- Focus on a diversified, market-cap-weighted approach, understanding that some parts of your portfolio might underperform at times.