What’s an EFT? (And Other Funny Post-Brexit Questions I’ve Received)

While promoting my Brexit article Friday on Facebook, I couldn’t resist sharing with my friends that I thought Vanguard’s Europe ETF was a great long term buy. After all, it fell over 10% in a single day. That’s when I started getting a flurry of emails, texts, and other private messages as if I’d just shared an insider tip. Personal finance bloggers love to receive serious thought provoking questions from readers. At the same time, we also love to be entertained. Fortunately, these funny post-Brexit questions pass both tests.

funny Post-Brexit questions made my Friday (they actually have important answers)

“What’s an EFT? How many should I buy?”

My friend meant ETF, or exchange traded fund. Unfortunately, far too Americans understand what an ETF is. This financial product started out as a way to trade index funds throughout the day instead of only buying and selling once a day at 4pm as with mutual funds. Now there are some actively managed ETFs, but they are still mostly passive with low fees. An ETF trades like a stock on an exchange. Therefore, ETFs are subject to Wall Street firms (specifically market makers) posting prices where they are willing to buy and sell transparently. Sometimes all these firms pull back at once from the market and screw over the little investor. That is why you are probably better off using only mutual funds unless you know how to use a limit order.

“I want to buy pounds. It used to be $2 per pound. Now it’s $1.30 per pound. I bet it’s going back up really soon. How can I get some?”

Strangely enough, my first thought was that you could easily be talking about ground beef and not the British currency. To get some paper money with the Queen’s face on it, you could always go down to the bank and request some. Additionally, you could use the futures markets or trade Forex. Unfortunately, these options are too expensive to be worth it to me. Also, I would not expect the exchange rate to go back anytime soon. The world needs to sort through a lot of uncertainty first.

Incidentally, if you want to get cheap exposure to foreign currencies, you can actually just own foreign stocks directly. My favorite way to get access to a foreign currency that I think is cheap is to just buy an ETF that owns stocks in that country. I chose Vangaurd’s Europe ETF VGK because the UK is the number one holding, at 31% of the index. France and Germany each make up about 14% too, so essentially you can buy a market cap weighted representation of all European stocks for about 0.12% a year. VGK is one of the larger Europe stock ETFs. Hence, it should benefit from smaller transactions costs if you try to go sell it.

“I have a 401! Can I use my 401 to put money in Britain?”

Your 401k is supposed to be for a long term retirement investing, not short term speculation. That said, you could always move some money from domestic stock funds to international stock funds if you wanted to invest more in Europe. I certainly have in my own personal portfolio. Unfortunately, international stocks in 401k plans can be notoriously expensive.

Regrettably, I have seen many 401k plans through insurance companies set up this way. Their S&P 500 index fund costs 0.4% and the international fund is some actively managed garbage with a 1.5% annual expense ratio. You might as well stick to US index funds if the only other options you have in your 401k cost more than 1% a year in annual expenses. If not, then count yourself lucky and decide whether moving some money to international stocks right now is a prudent decision for your risk tolerance (expect a lot of turbulence).

“Oh shoot I only have a mutual fund account! I guess I have to wait for a week to get access to these ETFs.”

Most ETFs have mutual fund equivalents if you search the title of the ETF and replace the word ‘ETF’ with ‘mutual fund.’ For example, if you searched Vanguard Europe Index ETF, you could search Vanguard Europe Index Fund. Vanguard invented their ETFs to pair with a virtually identical index mutual fund. You will usually not be locked out of a trade because you only have one account type if you know the similar products to use.

When I saw that VGK fell so much, I didn’t want to wait for the end of the day to lock in the price. I used an ETF because it guaranteed me immediate execution at a level I thought was attractive long term. That said, my friend who thought he needed a brokerage account to invest in Europe that day realized he could also use his already opened mutual fund account. He got a better price than I did as European stocks faded into the close.

“Are you going short term or long term on this Europe trade?”

Unfortunately, I know very little period about the short term in financial markets. We could be on the verge of a Global Depression, or the Queen could declare a special Royal Holiday and issue a limited edition line of dresses to stimulate the economy.

I only trade for long term gains. I have no idea if the Europe ETF will be higher or lower next year. To be honest, the price does not affect me short term. That’s how you should think about your stock market investments. Only a Great Depression type event would cause you to have to change your standard of living if something happens to the stock market. Anything you have in stocks can easily fall 50% or more, so treat the money like it’s gone in the short term, and in the long term you will be rich. Long term means years not months by the way.

Don’t Be Scared. Ask Lots of Questions

There are no dumb questions when you are getting started in investing and saving. Heck, I ask a few to friends and colleagues about markets where I don’t have special expertise. Most financial companies have a deliberate interest in keeping you in the dark. How else could they get people to invest in their high fee under performing investments.

I saw annuity salesmen Friday on Facebook actively stoking people’s fears to set up more appointments, which I found particularly disturbing. Annuities sell much easier when there’s large negative moves in the market. That’s also when the stock market is more likely to be a good investment. When do you want to buy a used car with great gas mileage: when gas prices are low or high? Clearly you want to buy low and sell high with every financial asset. Even better, just never sell and keep receiving the dividends and capital gains for life.

Be Wary, Snake Oil Salesmen Love Volatile Environments like the Brexit

Annuity salesmen get 10% commissions on the money you invest with them. Other forms of products that combine insurance and investing come with similarly high payouts for advisors. These commission-based salesmen push annuities after weak stock market performance instead of during stock market peaks when they could be more attractive. Just when the stock market is most likely to turn around, these guys come out of the woodwork to suggest guarantees that you don’t need.

Even so, a couple “advisors” on Facebook were encouraging people to talk to them about their ‘unique financial products’ that can protect your portfolio from volatility. The business model is this: insurance companies take your money and invest it in the stock market. They promise you that you will never run out of money because the stock market is dangerous. Nevertheless, they take this very money and invest it in the stock market themselves. If markets perform, the guarantee worked and they make money. If stocks plummet, the insurance company just declares bankruptcy and walks away, leaving you with an empty promise.

Funny post-Brexit questions are great. Unfortunately, many people who do not get real answers to questions that arise in periods of financial volatility go to the doorstep of these commission-based advisors that make a killing off selling you junk. Please be wary and recognize that most financial advice is a ripoff.

Personal Finance Bloggers, What Are Some Funny Post-Brexit Questions You Have Received? 

I would love nothing more than to put scare mongering financial advisors out of business. By seeking the expertise of personal finance bloggers, you can help me do exactly that. One of my favorite parts of running Millennial Moola is getting to interact with some of these talented bloggers such as Sam from Financial Samurai or John from Mighty Bargain Hunter. Look at my site. Look at their sites. Check out the Blogs I Love page to find others. Get a first rate financial education for free.

Personal Finance bloggers out there, did anybody send you funny post-Brexit questions? I bet you have far more hilarious ones than me. I challenge you to top mine by sharing some in the comments below.

Readers, What Are Some Questions You Want to Ask?

If you have a question about money that you think might be dumb surrounding the Brexit, stocks, ETFs, or whatever, ask it anyway! The comments section of this post is a great place to do that. I’ll respond in the comments section below, or you can always send me an email at travis (at) millennialmoola.com. I can’t give you personalized advice but I can explain the difference between a mutual fund and an ETF, or send you somewhere with more resources to learn. I’m working furiously on my second book to do exactly that.

Regardless of whether you received funny post-Brexit questions or have one, let the community know in the comments below. As a Brit would say, Cheerio!