Making a Visit to Moneyville

Canada’s largest newspaper, The Toronto Star, joined the universe of personal finance websites in September with the launch of Moneyville. The huge site contains a mix of news and features as well as regular blogs from writers such as the Star’s inimitable consumer advocate, Ellen Roseman.

This week Moneyville is running a three-part series of articles by yours truly:

• In the first piece, I pick apart a common criticism of index-based ETFs: that they’re “just average” because they’ll never beat the market. This is an argument that advisors love to make, implying that they can help their clients do better. As I explain in the article, if you simply earn “average” returns — those delivered by the market indexes — you’ll trounce the majority of active mangers over every long period. (Coincidentally, The Oblivious Investor ran a blog post on just this topic yesterday.)

• The second article looks at five reasons why ETFs are superior to mutual funds. While experienced index investors won’t learn anything new here, mutual fund refugees will find it a useful primer. For a more detailed discussion of these ideas, they may also want to check out the series I prepared on Couch Potato basics.

• Finally, the series wraps up with a discussion of three situations where ETFs are the wrong choice. Exchange-traded funds are one of the most important financial innovations of the last decade, but they’re not for everyone. One of the most important points for investors to understand is that ETFs are generally a poor choice for people with small accounts (less than $30,000 to $50,000), and they present some challenges for investors who make small monthly contributions. Index mutual funds are often a less costly choice, despite their higher MERs.