Ah, you thought you were all done with homework with your schooling days behind you, right? When it comes to investing in exchange traded funds (ETFs), however, homework is the key to success. Let’s hit the books.
David B. Armstrong for U.S. News World Report lists three solid reasons for you to do the homework if you were thinking of slacking off: [4 Tips On Picking The Right ETFs for Your Goals.]
- So many choices…: There are more than 1,000 ETFs currently trading on the exchanges and almost 800 undergoing registration to begin trading soon. Many cover similar asset classes. You can’t choose them by hovering your finger over a list and seeing where it lands. You need to research and examine. You can do that on our site by using both the ETF Analyzer and the ETF Resume.
- Varying performance: Just because two ETFs track the same sector does not mean they will have the same performance. We mentioned that many ETFs cover similar asset classes, but don’t assume that they’re all carbon copies of one another. Factors that can impact performance include, but aren’t limited to: expense ratios, market performance, weighting of components, market-cap of the components and more.
- Complexity: ETFs are getting more and more complex, with many employing actively managed strategies, mimicking hedge fund strategies or simply own instruments such as futures, swaps and options that the average investor may not fully understand. If you want a complex product, make sure you know how it works or you could suffer some burns. [ETFs: a Portfolio Diversifier.]
Want more tips on how to fine-tune your mad trading skills? Visit our education page for a slew of articles!
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.