I love getting financial magazines like Money and Kiplinger’s Personal Finance. There’s something about holding a physical magazine in my hands. It’s a welcome change from all the personal finance websites I read. (Those are excellent too, though.)
I got this month’s (September, 2015) Kiplinger’s and I didn’t get too far before I was saying to myself, “Really!?!” And yes I mean it in this hilarious way like the SNL skit.
It just wasn’t that I was getting September’s magazine in July. Yes I always take issue (pun intended with that) with that, especially because financial information is timely. Due to production times, I often read about a stock and find out that the magazine quoted the price from the month before before… further exaggerating the timeline.
This month the editor Janet Bodnar opens up with by stating that they going to create a Kiplinger ETF 20, their top 20 exchange traded funds of the 1740 out there. On the face of it, it seems like a great idea. The problem is that choosing a great ETF hasn’t significantly changed in the 9 years I’ve been writing this blog. It hasn’t changed since before that.
It shouldn’t surprise any of my regular readers that Kiplinger’s top 20 includes 6 Vanguard ETFs. It also might not surprise readers to learn that iShares has another 6 spots. Schwab has a spot. The biggest surprise to me is that Fidelity got left out of the party.
You could have mostly picked the ETFs out of a hat from those four companies. There’s almost no difference between iShares Small-Cap (the recommended ETF) and Vanguard’s Small-Cap ETF. If I’m going to split hairs, I’d go with the Vanguard one as it has a hair lower expense ratio.
In the editorial Bodnar seems to admit that most of them are the same stating that many track the same indexes and are look-alike products. She points out that the differentiators are “tracking error” where an ETF differs from the index it tracks and trading volume which helps keep costs low. Almost all (perhaps all?) the ETFs from the above companies would qualify.
Unfortunately, one of the more useful things didn’t make the top 20. Bodnar mentions that a REIT ETF made the top 30, but got left off because “it’s not the best time to buy a REIT fund.” I find it unusual to see a financial magazine advocate market-timing at the expense of diverse asset allocation.
Even more curious, a healthcare ETF made the list. I’m a strong believer in health care with the aging baby boomer population, but the ETF is up 25%+ annually over the last 5 years. History has made it clear that will not continue for any sector. I’d argue that “it’s not the best time to buy a health fund.”
I’m probably being too critical. Financial magazines have to find something to write about. Personal finance doesn’t change month to month. That’s why I say you can be lazy with your money. If you set up a basic system once and develop a few good habits, there’s not much else to it.
In a lot of ways I feel Kiplinger’s pain in keeping personal finance fresh. I have the same issue in writing a blog on personal finance every day. I should thank Kiplinger’s Top 20 ETFs because it gives me articles like this to write about.
If they really wanted to simply the ETF choices for everyone, they could have done so in three simple words: Buy Vanguard ETFs. This isn’t an advertisement for them and I make no money from them, they’ve just been historically the best in the industry with their microscopic expense ratios… and there’s a fund for just about anything you’d want to buy.
The only time you might want to stray is if you care to make risky bets such as whether Greece or Russia are going to pull out its financial hole. If you are considering such investments, you can probably figure out the finer points of ETFs.
What do you think? Do we really need a top 20 ETF list? Was I too critical? Let me know in the comments.