A Beginner's Guide to Understanding ETFs

[See 3 Sites for Picking the Right ETFs for You.]

With any investment, risk looms. This is not to say that ETFs are a sure thing; no investment is. Being too closely tied to one sector or index means that a crisis would immediately impact your bottom line. Asset allocation spreads the risk, but doesn't eliminate it.

There is also a danger of underperforming other investments. Indexes do go up consistently over time. But individual stocks have the potential to go up much more quickly. Investors who are a bit more accepting of risk might want to look into instruments that can provide more dramatic returns. ETFs are more suited for investors whose taste for risk is less strong.

There are also concerns that ETFs might simply be a trend, and that traditional mutual funds are better investments. This rumor has circulated in investment circles since the creation of ETFs in 1993. After nearly 20 years, it looks as if this once-exotic instrument is becoming a more traditional one.

Reader Comments Read all comments (5)

Add Your Thoughts

Comment Name State Select One AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY International Email

Please enter the two words below into the text field underneath the image.

Incorrect please try again

Enter the words above: Enter the numbers you hear:

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.