As exchange traded funds gain ground in the markets, many have found ETFs to be an efficient, cheap and easy-to-use investment tool. However, ETFs come with their own set of factors to keep in mind.
For instance, Daniel Solin for U.S. News points out that transaction costs can add up. Since ETFs trade on the major stock exchanges and investors can buy and sell ETFs like any regular stock, trading fees can add up.
Investors will incur an up front commission fee, and traders should be aware that ETFs can incur implicit costs from a wide bid-ask spread. [The Total Costs of Owning, Trading ETFs]
Nevertheless, some brokerage firms have partnered with ETF sponsors to offer commission-free trades on certain ETFs. The commission free trades should help investors cut down costs when regularly rebalancing their portfolios. [Six Popular Commission-Free ETF Trading Platforms]
ETF investors should also monitor their exposure. There are a number of specialized, niche ETFs that target specific countries and sectors. While it may be nice to profit off a move in a specific area of the market, investors should not go crazy in overweighting a single area of the market.