ETFs Long Term Investing Tips : NobleTrading Blog

Tuesday, July 7, 2009

ETFs Long Term Investing Tips

Exchange Traded Funds (ETFs) are really handy tools for building an investing portfolio which needs passive management and less screening skills. An investment portfolio comprising mainly of ETFs can offer more control over portfolio management and returns which equal (or exceed) tracking markets. Here are some tips for long-term ETFs investment.

Diversification – ETFs vary considerably with their portfolio composition. For long-term investors, it is better to choose ETFs which track broad indexes than some small industries or a handful of stocks.
ETF Performance – Most actively managed ETFs fail to outperform the benchmark; more over they are also costly to handle. Passively managed ETFs which offer returns as the tracking benchmark is a good option; as far as the benchmark is a good and broad one.
Large investments – With ETFs, the trading cost associated with buying/selling is a major profit determining factor. So instead of buying a small number of shares frequently, try to buy more number of shares occasionally; preferably through a discount brokerage firm.
ETF with no style drifts – There are some funds which regularly change their portfolio compositions, like including more small or large cap stocks. This active management can cost you, prefer ETFs which stay passive with their style.
Better to avoid similar instruments – There is no significance of trading two ETFs or trading and ETF and a mutual fund tracking same index (except higher trading costs). Be diversified with your investments.
Tax efficiency – Choose the ETFs that offer you better tax savings than others.