An ETF That Pays You for Your Investment Is Probably Not a Good Idea.
You’ve heard of commission-free ETFs. But what about an ETF that pays you to invest in it? Sounds too good to be true, right? But that’s exactly what Salt Financial unveiled last week.
The Salt ETF waives its usual 0.29% commission on a client’s assets and also provides a 0.05% discount on the value of those assets (read: you get $ 5 for every $ 10,000 you invest ). The offer is valid for the first $ 100 million in assets to be invested in the fund over the next year, Quartz explained ; at this point, the discount ends and the commission is refunded.
Why such a generous offer? Well this is a business. I called Brent Weiss, CFP and co-founder of Facet Wealth to explain this newfangled ETF offering.
“They try to attract new consumers to a product when people may not be ready,” Weiss said. By encouraging people to buy, Salt can show these assets to earn faster and more widespread distribution across major investment platforms (Vanguard, Fidelity, etc.). “They will lose money from the start, but this will help them reach the critical mass of having enough customers.”
It’s a tricky business move, but Weiss compared it to the old model offering a free toaster when you open a bank account. Instant grants are good, but the advertised “ free ” or “we pay you” ETF may not fit into your personal investment plan.
“What risk do you want to take by investing in this fund?” He advised potential investors to think. “What happens if the fund doesn’t raise enough money? Should the fund be closed? If the fund loses money? “
Instead, he says, aim for a low-cost investment (look for 0.25% or less) and don’t be dazzled by promotional offers. “Investing well is boring,” he said. “The encouragement suggests that there is probably too much risk in this investment.”