“Nothing surpasses the beauty and elegance of a bad idea.”
–Craig Reucassel
Wall Street excels at taking a simple concept, complicating it, making it riskier, and charging a premium for it. Witness the latest financial land mine offering individual investors the opportunity to lose more money faster at a greater cost: single stock ETFs.
Individual investors now have a new way to make speculative wagers on whether Tesla will rise or PayPal will crash, and can even magnify their bets with leverage, by simply purchasing an ETF built around just one stock (for a fee, of course). But these leveraged and inverse single stock funds are not well understood by most investors and should not be considered as part of a long-term strategy.
The first Exchange Traded Fund appeared in 1993 as an alternative structure to traditional mutual funds. They were originally intended to provide low-cost, diversified, passive exposure by replicating broad indexes like the S&P 500. Today investors can choose from hundreds of very low-cost index ETFs with total expenses below 0.10% and many with no expenses at all. So far, so good.