CLIX - Investors Should Avoid Getting Burned by Complex ETFs
Investors interested in gaining access to the stock and bond markets currently enjoy a wide variety of possibilities as the universe of exchange-traded funds (ETFs) has grown. For the most part, this growth in low-cost, easy-to-access ETFs has been a boon for investors. However, while gaining access to niche sectors of the market through these products has never been easier, the risk to investors getting burned in some of these funds has increased.
As the popularity of exchange-traded funds has grown, providers have begun to create more intricate securities. In general, ordinary investors should avoid these less-understood funds. Some of these newer, more complex products come with higher risks and are not appropriate for the average investment portfolio.
Most investors have a strong grasp on how exchange-traded funds operate. In a standard ETF, the value of the security will correlate exactly with the value of an underlying basket of stocks or bonds. The SPDR S&P 500 is a good example of a standard fund.