ETF Investing Tips
The ultimate goal of every investor should be to maximize investment returns while mitigating potential losses. While there are several investment options available, ETF (Exchange Traded Fund) investment may prove to be the best investment choice for you if you want the type of returns that stocks offer but without the added risks. This is because ETFs are similar to mutual funds but they trade like stocks. By investing in ETFs, you give yourself the opportunity to make good investment returns even while reducing your exposure to risk. Here are a few ETF investing tips that will help you to get the best returns from ETF investing:
- Avoid High Cost Brokers – In order to participate in ETF investing, you must do so through a broker. Bear in mind however, that brokers will charge you a fee for the service. These fees will certainly affect your net investment returns since the broker will deduct their fees before paying out any gains to you. Brokerage fees may be as high as 10%, which is a huge cost that you need to consider. Therefore, be certain to shop around to find a low-cost broker before placing your investment. The last thing you want to do is to defeat the whole purpose of ETF investment, which is to make a relatively low-cost investment while giving yourself the opportunity to still make great returns.
- Choose an ETF Fund with a Strong Performance Record – In investing, past performance is no guarantee of future performance. However, the likelihood of a fund performing well in the future is much greater for a fund that has track record of strong performance. Therefore, to improve the chances of making good returns on your ETF investment, you need to do some research into the performance history of potential ETFs.
- Diversify – One of the guiding principles of investing is diversification. A diversified portfolio will help you to mitigate potential risks. When investing in ETFs, the same principle applies – diversification is key. This simply means that you should invest in a few strong performing ETFs in order to improve your investment performance potential. Invest in 4 or 5 ETFs that have performed well in the past and that have a reputation of giving great returns. This way, you spread the risks and increase the likelihood of making positive investment returns.
- Choose an ETF That Tracks an Index – With ETF investing, it is best to go with a fund that tracks the performance of an index rather than to actively trade. This is because there are trading fees and commissions that must be paid each time an ETF is bought or sold. These fees can really add up and significantly cut into any investment gains made. In addition, ETFs that track broad indexes such as the S&P 500, also tend to be less volatile.
- Consider ETF Liquidity – The best ETFs to invest in are those that can be readily bought and sold on the market.
Follow these ETF investing tips and you will be on your way to maximizing your investment returns!
