Watch out for crash in index ETFs

Index exchange traded funds (ETFs) are heading for a crash in the future as there is snowball effect of investors moving into these assets.

Dale Gillham, chief analyst at Wealth Within, said investors were likely to seek higher returns in a down market and could move into index ETFs at an “alarming rate”.

This was likely to lead to a snowball effect and could then lead to a crash if investors subsequently tried to exit them at a similar rate at a later date.

“My prediction is that over the next few years, we will see a snowball effect of money moving into index ETFs at unprecedented levels, as well as investors borrowing heavily to invest in these funds,” he said.

“This will significantly increase the speed of the snowball effect, which will be alarming in years to come. Many of you may remember during the Global Financial Crisis, there were major concerns around index funds with many investors deserting them in droves after they fell heavily.

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“Sadly, history is repeating itself and I can confidently say that index ETFs will be at the forefront of the next major crash and not in a good way.”

He cautioned investors  from making knee-jerk movements with their asset allocation as making decisions at the wrong time could negatively affect returns.

“Now is not the time to be changing investment strategies or making knee-jerk reactions, as you might just find yourself missing opportunities when the market starts to rise.”