Are ETFs right for me?

Depending on your overall investment strategy, exchange-traded funds (ETFs) may make sense as a core or supplemental holding in your portfolio. ETFs are worth learning about because they potentially offer diversified exposure to the market at a lower cost than mutual funds, and/or a way to target specific sectors, regions, or asset classes.

However, not all ETFs are created equal - some are broad and diversified while others are narrow, volatile and speculative. Before buying ETFs, be sure to do the following:

  • Ask your investment advisor to help you construct a diversified portfolio matched to your personal goals and risk profile.
  • Do your homework: read the ETF's prospectus and other descriptive information fully.
  • Make sure you understand the index or underlying asset the ETF is based on, the risks associated with that index or asset, and how it fits with the rest of your portfolio and your investment goals.
  • Make sure you understand the costs associated with ETFs (annual management fee plus brokerage fees).