ETFs Are Popular, But New Investors Must Be Careful It is easy to go with the hype that comes with ETFs. But new investors need to be careful not to get too carried away without examining other factors .
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ETF trading is an important element of stock trading. Exchange-traded funds (ETFs) have become really popular recently. ETFs provide strong returns for investors, for a fee that is relatively low. You can buy them easily too and they’re structured in a manner by which much of the chore of asset management is removed. As an investor, you wouldn’t have to bother about these aspects. It is no wonder then that ETFs are among the most popular vehicles for investment.
The Need for Caution with Hyped ETFs But this investment expert on Investopedia, Nathan Reiff, reckons that there should be some level of caution exercised among investors eager to invest in ETFs. While there is major interest from everyday investors, there is also a significant number of ETFs to deal with. There will always be varied kinds of ETFs and some funds rising above the others in terms of popularity. Investors who are new to ETF trading could therefore get overwhelmed by the sheer magnitude of the ETFs out there. As a result, they pick the trendiest ETFs. Reiff quotes Forbes as reporting that this strategy could pose dangers. Hype is never something that works in stock trading. Having a trendy ETF presents risks for new investors primarily because the inherent risks and the other aspects that need to be taken into consideration can easily be overlooked. That could keep them from investing wisely.
ETFs Are for Industry-focused Investment ETFs are probably a good option for those wishing to specifically invest in some industry, since ETFs are usually focused on particular sectors or industries. That’s unlike mutual funds that are usually quite open ended and spread out the investment to various sectors. But ETFs don’t usually provide you with broad exposure. If investors find it extremely easy to shop for trendy ETFs, Forbes reports that such ease could actually be deceptive. According to Royal Bank of Canada’s Janelle Nelson, the underlying securities’ liquidity is what matters. That’s what investors need to look
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out for. Nelson mentions that if you have a stock containing around 30% to 40%of an ETF, it is more worthwhile to buy the entire stock outright.
Choose ETFs Having a Strong Sponsor The ETF space has seen a push towards thematic structure and specialization. And that has resulted in legitimate funds as well as less legitimate ones being created. If investors blindly follow the trends, they won’t take time to investigate their investments in detail. That could spell trouble. Nelson believes you should only buy quality ETFs having a strong sponsor. It is important to be cautious here since ETFs may be easy to buy but they also need to be easy to sell during crucial periods.
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