📈WTF is an ETF?
Finance bros love a good acronym as much as anyone outside the military so naturally ETF stands for an Exchange Traded Fund. Which is just like a mutual fund with better tax treatment and daily liquidity. Now that we’ve used a circular definition that doesn’t explain anything, let’s dive in!Â
We’ve mentioned the S&P 500 in prior articles. It’s the 500 largest companies in the US put together in an index that is often quoted and used as a barometer for the overall stock market. Owning the entire stock market seems like a good idea, but it used to be incredibly expensive to buy 500 individual companies. Not only that but there are different weights for each company, and they add/remove companies all the time. Frankly keeping track of that sounds exhausting, but thanks to advances in technology you can buy all 500 companies with one ticker.
Even more exciting, it’s not just the S&P that you can put in an ETF wrapper, you can do it with lots of other things too. ETFs are useful because they reduce the risk that one company goes bankrupt and hurts your portfolio.Â
Now some of you may be saying wait my 401k has this and it’s called a mutual fund. And to you we say…
Mutual funds have been around since about 1920 while the first ETF (SPY which is the S&P 500) was launched in 1993. While mutual funds were a great revelation they had some flaws which ETFs sought to address. One of those flaws was inefficient tax treatment of a mutual fund if not held in a retirement account. Every year you would have to pay taxes on gains in a mutual fund. But with most ETFs you only pay taxes when you sell and over time, this can be significant.Â
We like this since taxation is theft (kidding but shoutout Randall). And even more importantly ETFs cost about half as much as mutual funds on average. While 0.5% vs 1% isn’t much, it adds up to a lot over time.
The other thing ETFs are known for are investing in themes.
Love to travel? There’s an ETF that invests in travel companies.
Think genetics are the future of healthcare? There’s an ETF for that.
What’s the Upside?
While ETFs might not be available in your 401k we recommend them in almost every other scenario. From your Roth to your Robinhood ETFs beat out mutual funds because who doesn’t like more money? You’ll pay less taxes and save money on fees, and they allow you to invest in lots of companies at once. The cherry on top: if there’s a theme you feel passionate about, you can invest in an ETF for it.Â
For Your Weekend
This is where we’ll post a round-up of essays, podcasts, and streaming shows to check out over your weekend. We cast a wide net so you don’t have to.
Read:
A Simple Plan to Solve America’s Problems by Derek Thompson (The Atlantic)
Zoom out, and you can see that scarcity has been the story of the whole pandemic response. In early 2020, Americans were told to not wear masks, because we apparently didn’t have enough to go around. Last year, Americans were told to not get booster shots, because we apparently didn’t have enough to go around. Today, we’re worried about people using too many COVID tests as cases scream past 700,000 per day, because we apparently don’t have enough to go around…
In the past few months, I’ve become obsessed with a policy agenda that is focused on solving our national problem of scarcity…
This is the abundance agenda.
My first impressions of web3 by Moxie Marlinspike
‘Web3’ has been the hot buzzword around Sandhill Rd and beyond for the last few years. As with any buzzword, it is both descriptive and exclusionary, communicating anything of value only to those in the know.
In a shot across the bow to Web3 adherents and NFT enthusiasts, noted thought leader Moxie Marlinspike (a pseudonym) offered this analysis of the supposed benefits conferred by web3. TL;DR: it’s more of a rug-pull than you expect.