Investors Suffer with Too Many ETFs

Tim Fortier  |

Unlimited choices produce genuine suffering according to Dr. Barry Schwartz.

In his book Paradox of Choice - Can Having Too Many Choices Make You Unhappy, Dr. Schwartz argues that more choices make us more uncertain about our choices. And this leads to increased anxiety and suffering.

Investing already produces anxiety for many investors. So adding more choices without a solution for managing them seems to make the anxiety grow and grow. And this is especially true when it comes to Exchange Traded Funds (ETFs).

ETFs are the fastest growing segment of the investment industry. And with over 1,300 funds to choose from … no wonder investors stay anxious in these markets.

Assets in ETFs reached the trillion-dollar milestone a little over a year ago. Approximately 99% are in passive index funds. And a recent report by U.S. consulting firm McKinsey & Co. indicates that active ETFs alone could hit $1-trillion (U.S.) in assets within a decade. And as money races out of mutual funds and into ETF’s … more assets will lead to more funds and more choices.

And according to Schwartz … more choices will make you unhappy… and the suffering will continue.

I am not against choice or even the influx of new ETFs. I believe investors have never had it so good. ETF’s provide a unique way to hedge downside risk without having to short stocks or buy put options.

And so now investors can even profit from market declines through inverse ETFs. It’s never been easier to build a well diversified portfolio.

More choice is good thing for building profitable portfolios. But choices have to be managed effectively to reduce anxiety. And this is where systematic screening can quickly cut through market “noise” and remove the irrelevant choices.

One simple approach is Relative Strength filters. These can easily reduce the universe of ETFs to the funds that matter right now. And by adding mechanical, multi-factor models, thousands of securities can be screened and reduced to a small handful of relevant opportunities. These mechanical systems can drastically reduce the time and energy investors need to make effective choices.

And this is exactly why I’ve designed the systematic models at the Portfolio Cafe. Grounded in academic research and historical evidence the "Paradox of Choice" for investments has been greatly reduced.

And the result is a handful of well thought out and profitable systematic approaches for “happy investing”.

Click here to get a 30 day free trial at the Portfolio Café. And start your model investments today.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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