Investors need to look beyond just the name of an exchange traded fund and dig deeper to research holdings, diversification and trading strategy.

ETFs are investment tools that help provide exposure to many different securities through a single purchase.

“But with simplicity comes responsibility. It might be tempting to just look at the description of an ETF and buy it blindly,” writes Matt Kranz at USA Today. “But just as savvy investors know how important it is to dig and understand what comprises an index before relying on it, the same due diligence is required of ETF investors. You should never just buy an ETF based on its name. You need to know exactly what an ETF owns before putting your hard-earned cash into it.”

Investors cannot solely rely on trading an ETF based on its name. Two similar-sounding ETFs may be vastly different in how they are constructed and managed.

Like any investment, it is key to understand what comprises an ETF before jumping in. Each investor should undertake some due diligence and do some homework before committing to an ETF investment.

Potential investors may utilize our ETF Analyzer tool.

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