Exchange Traded Funds (ETFs) are certainly one of the best financial innovations to hit main street since mutual funds and retail online brokers. ETFs combine all the benefits of stock trading like instant execution, liquidity, and low fees with the diversification that mutual funds offer. It offers a great way to form a diverse portfolio through the use of passive investing. Additionally, there are now hundreds of different sectors, strategies, commodities, and asset classes to choose from. While these benefits are certainly great, retail investors need to also need to recognize some subtle risks that aren’t often widely publicized. Investors often start investing in a new ETF without fully understanding the actual objective or likely performance of the instrument in comparison to the desired benchmark. Here are four key pitfalls to watch for:
Darwin is a Chemical Engineer and MBA by trade. Enamored by investing and saving since his teen years, Darwin has been an advocate for optimized investment returns and frugal hacks for everyday consumers. His two primary projects are Darwin's Money and ETFBase, a site dedicated solely to ETF investing strategies. Darwin works full time as a Project Manager in Biopharma and finds time to contribute here and oversee his blogging projects in the wee hours of night after he spends evenings and weekends keeping up with his 3 children.