March 29, 2008 at 1:00 pm by Tom Lydon
So, you’ve got your eye on an exchange traded fund (ETF). It’s performing well, it’s above its trend line, the future prospects are good…SOLD!
When considering an ETF for your portfolio, there are certain other questions you should always ask.
Thaddeus Malley for ETF Guide wants you to ask these questions, even if you have all the backtesting data possible. ETFs are not a one-size-fits-all product, and performance alone should not be your guide.
- Does this ETF diversify my portfolio? Different exposure to asset classes such as small, mis and large-caps, commodities, and bonds give a well-rounded approach.
- Does this ETF magnify positions I already have? Whether fundamentally weighted or by market cap, many ETFs have similar holdings. This works against diversification.
- Do I understand the ETF? Know what you are buying…period.
Other ideas to keep in mind are historic standard deviation, beta and the Sharpe ratio. By looking at actual returns and by using common sense the opportunity is all yours. Just do your homework!
March 31st, 2008 at 4:54 pm
Hi,
How are dividents distributed in ETFs
Thanks
Pat D’Silva
April 2nd, 2008 at 10:56 am
Hi Pat,
They can be reinvested or paid out in cash. You can direct your broker as to which option you’d prefer.
Thanks for reading!