ETFs can be an excellent way to make a return on investment, but not all ETF’s are equal. Some of the most popular ETFs have been exposed to very high fees and low returns. All in all, they have been exposed for being bad investments.
In contrast, there is research that with proper management of your investments into an S&P 500 index or Vanguard’s total stock market index, you can see returns with lower risk than individual stocks over long periods.
These types of investing strategies have been shown to generate higher returns with lower risk when compared to active management styles, which rely more heavily on trading activity with the hope of increasing returns at a greater level than what it costs to manage the money in the first place.
Other factors go into making a good ETF investment. One of the most important is picking an ETF that tracks the market (like the S&P 500 or Vanguard’s total stock index).
If you can get even higher returns, you should go with a small-cap stock. Small stocks have been shown to have slightly better performance than large-cap stocks over time, which means if you have a high tolerance for risk and want to put your money in small companies, there is a place for those funds too.
Gold as another option
If you don’t think that any of these strategies will work for you, there is always gold as another option. Gold tends to outperform almost every asset class by having a low correlation with other types of investments and having a much smaller standard deviation than the S&P 500. It also has some of the most substantial returns on an annualized basis, meaning if you are looking for short term gains, this may be the ETF for you.
Look at all aspects of ETFs
When wanting to invest money in an ETF, it is essential to look at all aspects of what makes up each fund. Some funds have good track records but high management fees, while others seem to only be worth it with their low fees yet have more extended periods where they underperform their benchmarks.
It is essential to find the balance between risk tolerance, long term investing horizon, and return expectations when choosing which type of ETF investment strategy will work best for your portfolio.
Try not to brag
You should also make sure you are not bragging about your newfound ETF knowledge to everyone. Some people may be jealous of the work you have done and may want to steal your information to use it for their financial benefit.
You should never post or share this article with anyone else besides a good friend that will appreciate the research you have done to learn how to spot the best ETF investments.
Other things to consider
There is a wide variety of available mutual funds and ETFs, with different investment styles, risk levels, fee structures, time horizons, and potential returns. It makes them ideal for investors looking for exposure to specific markets and those trying to make a quick profit. Some funds generate greater returns than others over short periods.
Variables to consider
There are several variables to consider when it comes to investing in ETFs. Investors should look at potential returns of the fund’s expense ratio and compare that with an appropriate benchmark index. They should also consider diversification (how many stocks the funds holds), trading costs such as commission and bid/ask spreads, and secondary market commissions.
Lastly, they should track how long they will be invested for, what fees they pay on dividends, interest earned on cash holdings, and how often their accounts are rebalanced.
At its most superficial level, you have mutual funds that trade at net asset value just like stocks, while ETFs trade throughout the day at market prices but can then be bought or sold at the end of the trading day at net asset value.
If you want to determine the best ETF investment strategy for you, it is essential to understand these critical differences between them and mutual funds.