Full disclaimer, I'm as ignorant as it gets regarding finance and economics, and am in engineering.
The other day, I picked up "A Random walk down wall street" from my uni's library having heard good things about it, and it made a lot of sense for the most part, it was a very informative read. That being said I feel like something flew right over my head.
It says in the book that a portfolio composed of ETFs provide solid annual returns, and outperform most of other actively managed portfolios.
I looked at the S&P500, DJIA and Vanugard's total stock market ETF 10-y annualized returns, and to my big surprise it floats around 7%.
Living in Europe, inflation is around 0%, and my bank account gives me 0.75% annual interest rate.
Now, I asked myself, why can't my bank give me a higher interest rate if a diversified ETF-only portfolio is that safe and profitable ? Can't they just invest my money and give me a better deal? Something seems off, a safe 7% annual return seems too good to be true compared to my current interest rate. Surely some bank could rake all the clients in with an account giving a variable interest rate following the total stock market performance.
Am I misunderstanding something /biz/?
Ps: Does anyone (eurobros?) know about a trading platform with low commission fees I should use ?
>>1180603
I have a lottery broker. That means that I have a "buy random amount of shares of random company at random price"
>>1180603
There's still risk associated with it. There's actually laws (at least in the US) about using client money to invest. Dodd-Frank, I think it is.
>>1180628
Not to be mean but do you also post on random threads?
>>1180603
ohh geez op.
the banks are making the 7% on your money and giving you the 0.75%. all the money sitting in there accounts isnt just sitting there, the banks are making investments with it and getting returns. they usually invest in things a bit safer than the market though, but they have been known to get very risky with their investments (real estate, 2000s).
theyre pocketing that money and giving you your 0.75% to make it attractive to bank with them.
>>1180644
they definitely still do it.
>>1180644
>>1180654
Actually in my country the interest rate on my type of account is fixed by the state (based on inflation I think) and I know the law restrict the banks on what they can and cannot do with our money, so I think them pocketing the 6.25% difference is very unlikely.
I was more wondering about why can't I provide the following service : I keep your money like a bank but you can choose a percentage of your money to be invested in ETFs, maybe you want 0% or 30% or 100% invested in ETFs, knowing there will be some years where this percentage of money will shrink like 2008, but you will win a lot on the 10-Y annualized interest rate. I pocket a tiny percentage of the interest. I would use that service, I know a lot of people that would too, and according to the book it would work. What's the catch? Does it already exists ?
>>1180679
you basically just summed up a brokerage account.
>>1180603
>safe 7% annual return
Its not safe at all
There can be huge declines, look at 2008
>>1180841
ETF's are stocks, you can lose money. Deposit accounts in banks carry no risk, unless the bank folds, even then, bailouts.
The market could take a shit, ETF's along with it, just investigate what the ETF is composed of.
>>1180852
Makes sense I guess. I wish my bank account had a "risk" setting I could crank up. I will have to do it manually.
