25 things you should know about ETFs

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The article below comes courtesy of Michael Johnston of ETF Database.

“The rapid expansion of the ETF industry has been one of the most important developments of the last several decades to financial professionals; as the line-up of exchange-traded products has surged past 1,300, financial advisors now have more tools in their toolkits than ever before to help construct client portfolios. With these new financial products comes a responsibility to understand the various risk factors and nuances of exchange-traded products, and as the industry has expanded rapidly the amount of information to digest has swelled as well. While ETF education must be an ongoing process, there are a number of basics that can enhance overall understanding, identify opportunities and limitations, and generally promote a better experience with ETFs.

Johnston then lists 25 key aspects investors and advisors should be focusing on when it comes to investment in ETFs. These are listed below, but I would suggest you click through to the full article for a comprehensive description of each of the bullets.

1. Volume ≠Liquidity

2. Market Orders Just Might Burn You

3. Not All ETF Expense Ratios Are Created Equal

4. Bigger Does Not Equal Better

5. There’s More To ETF Expenses Than Expense Ratios

6. Structure Matters

7. Commodity ETFs Get A Bad Rap

8. Diversification Should Not Be An Assumption

9. ETFs Can Close …

10. … And ETNs Can Fail

11. There’s An ETF For That

12. Keep It Simple…

13. …But Not Too Simple

14. Watch Your Weight

15. Contango Can Be A Killer (And Backwardation Can Be A Blessing)

16. There’s More To ETFs Than Low Fees

17. ETFs Are Not An Acceptance Of Mediocrity

18. ETFs Did Not Cause The Flash Crash

19. An ETF Cannot Collapse

20. Bond ETFs Can Be Flawed

21. ETFs Are A Vehicle (Not A Strategy)

22. Odds Are, You’ve Got Options

23. Nice Returns Can Come In Small Caps (Or Not)

24. Sometimes, ETFs Aren’t The Best Option

25. Free ETF Tools Can Make Your Life Easier

Source: Michael Johnston of ETF Database, November 2, 2011.

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1 comment to 25 things you should know about ETFs

  • Sheldon Hellin

    Excellent article (full) with lots of details and good info.

    I actually learned something reading it.

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