Researching exchange traded funds (ETFs) that will fit into your portfolio isn’t exactly a quick and easy thing to do, but there are guidelines you can follow that can help speed up the process.
From websites to prospectuses, there are many ways to go about researching a particular ETF to ensure it will be a substantial fit to your investing needs. It is not a difficult process, however, many of us are finding little time to do such an important part of the investment process.
- Who are you?: Before you get started, think about who you are. Your age, when you’ll retire, whether there are any major life events on the horizon (children, college, a new home) are all important factors to keep in mind as you look for new places to invest.
- The provider: Find out who the provider of a given fund is, then visit their website for more information on the fund. Providers have fact sheets on every fund that breaks down holdings, sector weightings, country weightings and more. It’s an invaluable resource.
- Poke holes in your portfolio: Whether it’s foreign indexes, a sector, bonds, real estate investment trusts (REITs), or the S&P 500, there is an ETF to fill this void.
- Compare the competition: Areas that are necessary to compare to avoid eating into principal are taxes, expense ratios, a minimum investment requirement and the utilization.
- Fees matter: Whether you are hedging, shorting or using options, the fees make a difference in how much principal you end up using to make the investment. Be careful not to rack up trading commissions or capital gains taxes by actively trading.
- Background check: Always figure out what holdings are listed under the ETF. Just because the title of the fund has “infrastructure” in it, doesn’t guarantee a pure play of only infrastructure companies.
Be sure to do your homework, even if it takes longer than one minute. The ETF Trend Following Playbook is also a good place to start your research.
For more stories about trend following, visit our trend following category.
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.