Want to invest in ETFs? Here’s what to keep an eye out for.1. Total market risk – Most ETFs are simply amalgamations of all the securities in an index, so they’ll rise and fall with the underlying benchmark with no fund manager to cushion the fall. 2. Name risk – Research exactly what securities an ETF holds and the sector or subsector in which it invests. For example, if you like healthcare stocks in general, you may want a general index ETF that invests in several subsectors of this market. 3. Tax risk – The IRS says precious metals are considered “collectibles” for the purpose of investment taxation, and you will pay a standard rate of 28% on all gains in this area if you own an ETF that holds commodities. 4. Delisting risk –If you hold shares of an ETF that is liquidated, you’ll receive cash for your shares and must report it as a sale. 5. Overinvestment risk – If an ETF opens up a new sub-segment of the market, then a rush of new investor money may overinflate the share price for a period of time. 6. Trading risk –ETFs can be bought and sold at a low cost at any time, making it tempting to frequently trade in and out of them, increasing risk.
