There's been a lot of buzz recently surrounding exchange-traded funds (ETF) options, but while appeal may be high in some areas, you may want to get some unbiased financial investment advice before putting money into one.
Active management
ETFs have been lauded for trading like stocks without experiencing the daily quakes of the market as they track an entire industry, index or country rather than a single business. They have higher yield than money market accounts and cost less to opt into, making them more appealing and accessible to investors. These types of investments also allow holders to trade entire ETF units or to buyout a volume of shares included in the fund and trade those on the open market at current value. Because of this, there are times when trading either an ETF unit or a stock from an ETF fund will be more valuable than the other option, so investors can decide how to manage transactions.
Traps and pitfalls
"For the average guy, you want to stick with the major sectors, the major areas," said Wall Street Sector Selector publisher John Nyaradi. "You start to get more into gambling and speculating when you go into smaller areas, trying to catch them at the right time."
The very nature of ETFs could make them unstable in the future, so similar to investing in stocks, you may not want them to be the entire basis of your financial plan. This is because ETFs tap directly into commodities markets through investment banks, and this has caused some inflation in these markets. If new businesses and even growing nations leverage against these funds it may produce far-reaching destabalization if equity in these categories began to deflate.
There also aren't a lot of regulations regarding ETFs yet, seeing as they are a new investing tool. Lack of transparency has some groups like the Financial Stability Board and the International Monetary Fund concerned about compliance with trading regulations.
Savvy investing
"There is a gap between the sophistication of ETFs and the education of some of the investors," said Jim Wiandt, a well-published author of financial tips and statistics. He pointed out at a MarketWatch Investing Insight panel that these funds provide an opportunity for investors to broaden their horizons but they can also easily get overwhelmed.
A diversified portfolio is probably still the best bet for the average investor considering an array of financial services. While ETFs provide a doorway into a broader cross-section of investment markets, they can prove a bit overwhelming to those without a lot of financial investment advice or experience.