Exchange traded funds combine features that make them attractive both to short-term traders and to investors with a buy-and-hold mentality. ETFs provide access to almost every sector and asset class under the sun.
The funds are convenient, low-cost and so readily available that some industry experts think it is both an advantage and a problem at the same time.
“You start to get more into gambling and speculating when you go into smaller areas, trying to catch them at the right time,” said John Nyaradi, publisher of Wall Street Sector Selector, in a recent report. “How complicated do you want to make it? For the average guy, you want to stick with the major sectors, the major areas,” said Nyaradi, speaking at a MarketWatch Investing Insights panel called “ETF Trading: Where the Market Action Is.”
The choices for ETF selection are vast and varied, so where does an investor begin? The tradability of these funds can get the average investor in trouble if they are not educated on the fund and the possible consequences. [Are Shifting Demographics Driving ETF Growth?]
Jonathon Burton for MarketWatch reports that the bottom line for any trader or investor is to come into the market with a discipline, some type of strategy, and to stick with it. Some industry experts believe that the gap between ETF education and sophistication is still too wide. [How ETFs Save on Fees]
However, the majority of the $1.2 trillion that is invested in ETFs are in broad-based, plain vanilla ETFs that cover large portions of the market. Most of the assets under management in the smaller, niche funds are not large in terms of trading volume or assets. [ETFs Seen Hitting Nearly $4 Trillion by 2016]
Although the ETF table has become somewhat of an all-you-can-eat buffet, it is not right to blame the funds for emotional or uneducated buy-and-sell mistakes. Tools such as stocks, penny stocks and options have been around for some time, so if the average investor is going to shoot themselves in the foot, it’s probably not going to be with an ETF.
Tisha Guerrero contributed to this article.
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.