Another gray area is the use of leveraged and long-short ETFs. These are ETFs that are not intended for a buy-and-hold strategy and need to be monitored throughout the day. Maximizing profits on short-term calls is best left to the pros, so leave the guesswork to them. [How Financial Advisors are Using ETFs]
ETFs are a great way to diversify, so if you are uncertain of a particular company, a sector bet could be the way to go. For example, rather than investing just in Apple (NasdaqGS: AAPL), a better way to access the sector, and the company, would be through an ETF such as the SPDR Select Technology Sector ETF (NYSEArca: XLK) which holds Apple, and many other tech companies, so the risk factor is somewhat mitigated.
Niche ETFs are both a boon and a burden, since they allow access to corners of the market that used to be hard to reach for individual investors. However, some of the specialized markets can be complicated, and may expose investors to unprecedented risk. Use niche ETFs with an entrance and exit strategy and if you can not understand the investment, it’s a good idea to stay out of it. [Use Niche ETFs with Care]
Tisha Guerrero contributed to this article.