This brings us to more important questions: Are ETF investors ready to be tested? Are long-term investors who use ETFs for their low cost and tax efficiency prepared for a sell-off and properly diversified? Will they sell out of an ETF just because they can?
Lack of discipline can wipe out the cost savings provided by an ETF and then some. Learning and practicing the art of doing nothing is the next leg of this investor enlightenment era -- the current being controlling costs.
The media doesn’t help things by tending to refer to a potential selloff as some kind of disaster instead of simply part of a normal cycle. There’s nothing wrong with a sell-off, especially for long-term investors. Selloffs are part of life like flat tires or getting a cold. It isn't a one-way street. And even if the S&P 500 dropped 20 percent in the next three months, it would still be up 73 percent in past five years!
ETFs are ready for the next storm, but are investors?
This Bloomberg View column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.