ETFs: Investment Mistakes to Avoid - dummies

By Russell Wild

A lack of education about investing and ETFs — combined with a surfeit of cheesy and oft-advertised investment industry products, plus an irresponsible and lazy financial press — leads many investors to make some very costly mistakes.

Pay too much for an investment

Most investors pay way, way too much to middlemen who suck the lifeblood out of portfolios, leaving too many folks with too little to show for their investments.

By investing primarily in ETFs, you can spare yourself and your family this tragic fate. The typical ETF costs a fraction of what you would typically pay in yearly management fees to a mutual fund company. You never pay any loads (high commissions). And trading fees, as long as you’re not dealing in dribs and drabs, and being charged for each drib and drab, should be minimal.

Inappropriate risks

Some people take on way too much risk, investing perhaps everything in highly volatile technology or biotech stocks. But many people don’t take enough risk, leaving their money to sit in secure but low-yielding money market funds or, worse, in the vault of their local savings and loan.

If you want your money to grow, you may have to stomach some volatility. In general, the longer you can tie your money up, and the less likely you are to need to tap into your portfolio anytime soon, the more volatile your portfolio can be. A portfolio of ETFs can be amazingly fine-tuned to achieve the levels of risk and return that are appropriate for you.