Here's how to make ETF naysayers gloat: Take advantage of an offer one online brokerage firm has for 500 free stock trades and buy and sell your brains out.
The emergence of exchange-traded funds is the most significant pro-investor development of the past two decades. ETFs cost little to buy, little to own and you can build a portfolio that will carry you through many decades with half a dozen or fewer funds. But there's one nagging criticism of ETFs: Investors are sometimes negating the many virtues of these products by trading them too much.
The most forceful voice making this argument could be John Bogle, founder of the low-cost investing giant Vanguard. Vanguard, ironically, is an ETF leader today. Bogle's preferred index investing tools are the ultra-cheap index mutual fund that are also offered by Vanguard. While recognizing that ETFs have value as a way for long-term investors to capture index returns, he believes there's too much buying and selling of these funds. The more investors trade, he argues, the more they work against their own best interests.
The firm offering 500 free stock trades is Scotia iTrade, which seems to be making more of a play for stock jocks than its big bank competitors these days. You have to invest $500,000 to get the 500 free trades, or an alternative inducement of $500 in cash. For accounts of $100,000 to $499,999, the offer is 250 trades of $250 cash; for $15,000 to $99,999, you get 100 free trades or $50 cash. The fine print says the trades have to be made within 90 days from the date your account is funded. If you're a proficient active trader and see value in this offer, go for it. Making 500 stock trades in 90 days sounds like an investing suicide mission, but never mind.
ETF investors, stay away. If you've chosen to invest with ETFs rather than individual stocks, you've informally declared yourself to be a long-term investor. Stick with that plan and plan to hold your ETFs for years or decades, with exceptions made only for periodic rebalancing.
Note: Scotia iTrade has 50 ETFs you can buy or sell commission free. The funds must be held for one business day to qualify for this offer, which means you can trade them. Resist that temptation.