There’s a lot to appreciate about exchange-traded funds (ETFs), including the way they allow you to create an instantly diversified portfolio, minimize your risks, pay far less in fees than other investment types, and easily buy and sell.
However, like any serious investment, it’s vital that you understand what you’re getting into and avoid mistakes that could cost you thousands of dollars over time
Mistake 1: Buying the hype Imagine you’re sitting at a family barbecue, and your cousin begins to brag about the “amazing” investment he made. He tells you about his new ETF and its history of earning high returns. As he describes what he plans to do with the dividends, you wonder if it might help you diversify your portfolio.
You know next to nothing about the ETF in question, but you would seriously like to get in on those past profits your cousin mentioned. The issue with buying the hype is that past returns may not accurately reflect what you can expect in the future. Let’s say the “great investment” your cousin told you about was a healthcare ETF.