What to look for when considering an ETF! – (a simple guide)
What to look for when considering an ETF! – (single guide)
There are so many ETFs available today that we really have a lot of options and can find one that covers almost any area.
That said, there are some important points to keep in mind when choosing one. I’m going to keep this as a simple guide, mainly for personal reasons… (OK, so I can follow along!)
Things we should know…
one, Industry Knowledge – It would be wise to choose an ETF in a sector that you understand and have done your homework… (Just because you think technology or pharmaceuticals are big players and will do well doesn’t necessarily mean that the ETF you choose in this industry is going to do well)
two, Fund management history – Find out who is in charge of this portfolio and do some homework on this person. Check his trajectory and get an idea of his experience.
3, Longevity – How long has this current ETF been running? This is not always the most important factor, although from this you can find out how it has worked to date and that is information worth knowing.
4, Bills – Costs to hold your chosen ETF and also costs if you choose to drip feed it monthly. Knowing your annual costs and how you plan to fund it can also help you make a decision about which type of ETF is right for you… The costs of monthly drip feeding and maintaining it will add up, so this needs to be worked out beforehand. .
5, What’s in the bag! – It’s a good idea to look at the companies within your ETF of choice. There can often be a ton of stuff in there, so at least take a shallow dive and look at the top 10.
NOTE: – When searching for the top 10 companies, I suggest running all 10 through your scanning software, or run your due diligence and check all 10 to get an idea if this is the one for you… One Lo thing to keep in mind when looking at each company, is… “Would you invest in this individual company? Does it seem to be doing well?”
Yes, it may seem like a tedious process, and yes, it may take a bit of time to look at just 10 correctly, but remember, this is YOUR MONEY that you are putting on the line and you are solely responsible for making sure you do the right thing. task and do it well… (or as well as possible)
6, timeline – How long do you plan to keep your ETF? Is it just for a few years? Maybe 10 years? More extensive?
NOTE: – Having a planned goal and understanding your timescale can also help you choose the ETF that best suits your needs. For example, if you’re choosing a high-risk ETF and plan to hold it for only a year or two, then you’re open to market fluctuations, which means that in those few years, a market downturn could end up coming back. you’re either the same, or god forbid, less than what you actually started with, which totally defeats the point of this in the first place.
But there are plenty of stocks out there that totally outperform an ETF, so why would I choose this over them?
Yes, there are plenty of stocks that will outperform an ETF, but with a properly chosen ETF comes a little more stability and fewer worries (depending on your investment method). running too well or even takes a hit, your funds won’t take the same hit as the other stocks within it will (hopefully) pick up the slack.
Also, depending on the ETF chosen, it can be a more passive approach to investing, especially in the long term, as it is less susceptible to market corrections/downs/volatility/outright disasters, or whatever you want to call it.
It is very important to understand that investing or trading should never be a rushed process as most of the time it leads to bad (or risky) decisions and this is a good way to lose a lot of money.
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