Five hidden risks with Exchange Traded Funds

Passive funds are growing in popularity. This week Tim Bennett explain why and points out five pitfalls that investors should avoid.

[stefanogrillo]

Good video. Here are some thoughts I have on the subject. Considering risk 1. it seems to me that you have the same problem in an active fund if the mandate is e.g. to be invested in stocks. If you want downside protection, you can still use ETFs and apply a number of methods, such as momentum or trend-following rules to enter/exit the market. Considering 2. the more I learn, the more I realise you're better off choosing low cost funds tracking the broad index - and possibly adding a value and small caps tilt to your portfolio. So one can keep costs very low and look for ETFs with good AUM to avoid danger of delisting Considering 3. Same comments as for 2. best avoid complicated ETFs, just track the broad market, you can do that for TER below 0, 1% for the US market and ~0, 2% for the rest of the world. I avoid more complex - and costly - solutions. Considering risk 4. I agree, avoid those Efs (I personally avoid high yield bonds - in fact at present I avoid all bonds since I agree with Buffett that they are a return-free risky asset considering today's rates...) and Considering 5. I believe it's best to B&H personally and not try to time the market. Though you seemed to imply yourself (in discussing risk 1) that downside protection can be desirable. In this case use rules based methods, and take out of the equation all emotions and arbitrary decisions. Easier said than done, that's why for me B&h (i.e. buy and forget it...) is best. I still do some stock picking, e.g. in 2017 have had a couple of stocks that have doubled YTD - which is a lot of fun; but the bulk of my savings are in ETFs tracking the broad market and I think that's the best thing to do, unless you are Warren Buffett or David Swensen.

[rockyhernandez]

Hi, question for you! What if I’m investing in an etf and for some reason it goes away. What happens to all my money I had in those shares? Does it go away with the shares? Is the money put into my account, what happens? Thank you.

[CrazyLeiFeng]

Tim did not mention the 24/08/2015 flash crash and the use of esoteric derivatives.

[wehttam]

Good video, would you say emerging markets present more of a risk to some ETFs than others?

[miketheplumber]

So the ETF can go up OR down? Sounds risky