You know what they say about assuming. While we love exchange traded funds (ETFs) like crazy and will happily evangelize for them any day, there are some common assumptions that tend to get made about them that can leave you feeling burned if you’re not careful.
ETFs are, of course, easy to use and understand. That doesn’t mean that blanket assumptions can be made about them, however. While these are legitimate reasons to be cautious, the misconceptions are may need just a bit of explaining to clear them up. Tyler for Dividend Money reports some commonly misunderstood facts about ETFs:
- All investors should focus on how their investments are performing relative to an index. Not necessarily. If you can use a solid trend following strategy and generate returns, then the index becomes less of an issue. [How to Read an ETF Chart.]
- Everyone is a do-it-yourself investor. Look, lots of retail investors use ETFs. In fact, recent studies have shown that it may very well be these investors who are driving the industry’s growth. But ETF fees don’t include the cost of professional advice, so consider when professional guidance might be called for.
- All ETFs have low fees. ETF costs are different across the board. Many of the broad funds that track a broad spectrum of shares have lower fees, while the narrower niche funds are costlier and can end up costing quite a bit in the end. Some mutual funds are even cheaper than similar ETFs. [10 Reasons to Love ETFs.]
For more stories about ETFs, visit our ETF 101 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.