If you own an exchange traded fund (ETF), do you really need to know what’s inside the prospectus?

Not only is it a time consuming read, but it can be a confusing one. Jonas Elmerraji for TheStreet.com discusses the fine points of how to approach a prospectus, which is the document that a company uses to describe its ETF offering to the public. First off, the prospectus will tell what type of assets the fund holds: stocks, bonds, small or large caps, etc. You will be notified of restrictions for buying and selling, and charts and graphs that catch your eye do so for a reason. Many distributions are explained and expense ratios revealed as well as holdings, gains or losses.

Many other important aspects to an ETF are explained in the prospectus. Liquidity of the fund, net asset value and performance are imperative to understand. Some information that can be skimmed over includes privacy policies, disclaimers and marketing fluff. Remember that even if you read the prospectus cover-to-cover, the market shifts each day, so take current events and daily news into consideration before buying or selling.

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.