It seems now that everyone likes exchange traded funds (ETFs), there is a bit of caution thrown to the wind. ETF assets are at $422.5 billion, a 40.4% increase, and they are fully accepted by investors. InvestmentNews likens ETFs to power tools, when used correctly they are incredibly useful but dangerous when misused. Broad-based ETFs provide tax efficiency and cheap diversification for long-term investors. Misinformed investors may increase risk if they use an ETF incorrectly. For instance, they may inadvertantly increase their exposure to certain sectors or stocks if they do not examine their already existing stocks in their portfolios. The investor must be fully educated to take advantage of the ETF whirlwind.
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