Everyone knows that ETF funds are an excellent financial instrument for working in the stock market, especially for beginners. However, even using the safest tool can make many mistakes. Therefore, I propose to consider the 3 most common mistakes that investors make.
ETFs were created as a long-term investment tool available to a wide range of investors, which makes it easy to create a diversified portfolio at a comfortable price. However, many investors are trying to capitalize on ETF price fluctuations.
Recently, more and more ETFs have appeared that belong to a specific sector of the economy: ETFs for cryptocurrency, biotechnology, etc. On the Russian market: the IT sector and e-sports, and given that the government is actively developing the stock market, many others will soon appear! Many begin to invest in them relying only on the name of the financial instrument and the general hype that develops around it.
For example, now more and more ETFs for cryptocurrencies appear, some of them even have Bitcoin in their name for greater attractiveness. And one of these ETFs invests most of the funds in Facebook. What’s the connection? It turns out that Facebook is developing its own cryptocurrency. ETF could just as well invest in Tesla, as it invested in bitcoins and sells cars for them.
If you invest in a certain sector of the economy, then this will already be an active investment, and this, in turn, already requires certain skills and knowledge.
If you are investing in certain sectors of the economy, study the ETFs you intend to buy. What assets they contain and how these assets relate directly to the area in which you want to invest.
This error often comes from the previous one. We all know that ETFs are already a well-diversified product, but as it turns out, only partially, and even then not always. For example, an ETF on the Nasdaq 100 index — Invesco QQQ Trust (QQQ), only 3 companies (Apple, Amazon, Microsoft) hold 30% of the fund, and the index consists of 100 shares.
Not all of the mistakes investors make when investing in ETFs are listed here. But all errors have something in common, they all come from two problems:
There is no well-thought-out investment strategy
No understanding of what the asset consists of and how it works
ETF funds are a good financial instrument that is definitely worth using, but like any other financial instrument, it requires a serious approach.
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