The internet has changed the way people shop around the world with the retail sector currently dominated by Amazon, accounting for almost 65% of online sales. Amazon past Walmart (in market cap) back in 2015 and within the past two years has grown in value to be worth twice as much.
Large department stores and the more traditional malls are closing, but this is happening as retail spending continues to grow.
Online merchants have made it far easier, tap a button and our goods arrive at the doorstep the next day, but obviously at the expense of shop staff. The more comfortable and confident that online retailers will actually deliver what we order the more intelligent we are becoming as online shoppers.
This is identical in online personal investing. Is having the ease of service and renewed confidence a major influence upon why we are turning to index trackers and ETF’s rather than pay a money manager 2% to do it for us? The ETF market has ballooned since the early 2000’s and is now worth approximately $2.5 trillion. With this “online” competition, the rumors are that the fees have been reduced to almost nothing, with money managers taking just 20 basis points on the fund in the hope that they can make additional returns on the bid/offer spread.
One of the problems we could face however, is that the derivative (ETFs) becomes more liquid than the underlying actual index. This relationship works when fine in an orderly market but, without question, it will be tested in extremely or volatile conditions.
You likely know what an ETF is, but I thought you may want to know how they actually work so I included a instructive video below:
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.