When it comes to investing in exchange traded funds (ETFs), we often talk about the importance of having an investment strategy…and sticking to it. As the ETF industry grows and new indexes that attempt to outperform traditional benchmarks are launched, understanding these indexes is more important than ever, says Ron DeLegge for ETF Guide. Make sure the indexes your ETFs follow fit with your investment strategy. In addition, DeLegge offers a list of questions to test your index knowledge:
- Who is the company or index provider behind the index?
- In what does the index invest? Stocks? Bonds? Commodities? Derivatives?
- What kind of real-life performance track record does the index have?
- Is the index trying to match a benchmark or outperform a benchmark?
- How many holdings are inside the index?
- How often is the index rebalanced or reconstituted?
- How is the index weighted? By market capitalization? By fundamental measures? By dividends? Or, is it equally weighted?
- Does the index compliment your other portfolio holdings or is it needless replication?
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.