Last night on "Nightly Business Report", personal finance columnist Jason Zweig (and author of Your Money and Your Brain) gave some refreshingly specific pointers on choosing an ETF—and avoiding duds (the bolding is mine):
A, be sure the ETF is very diversified. Find out how many stocks the ETF owns by checking its portfolio holdings. I would avoid ETFs that own fewer than 50 stocks. B, see how much the ETF will cost you by looking up its annual expense ratio. You should almost always be able to find an ETF that charges less than one-half of 1 percentage point in annual expenses. C, whatever you do, stay away from any ETF that uses what's called "leverage" in the hope of beating the market. Watch for code words like "ultra," "inverse," or "2X," which definitely deliver more risk but give no guarantee whatsoever of a higher return.