i always heard positive thing about ETF like it is pretty safe investment with lowest expense ratio than mutual funds but never the cons, can anyone elaborate any cons for ETF?
For me since i am living in 3rd world country which has lower currency, might suffer to conversion to USD or EURO especially right now crisis cause it worser.
and access is difficult since interactive brokers is not officially available here. i also heard that there is fees on interactive brokers so not great to invest in small amount like $10 or $50 per month.
any suggestion?
ETF cons for small investor?
byu/hansentenseigan ininvesting
Posted by hansentenseigan
2 Comments
I am not sure about fees or anything, I use IBKR and I only pay per transaction not per month, and the sum is rather small.
The truth is, other than high risk, ETF’s dont have alot of cons. Perhaps active ETF’s that charge a high ter or concentrated ETF’S that are dangerous and highly volatile are “less good”.
An all world ETF is the most “safe” option to hold your money in. The markets can crash but over time, as we have witnessed they eventually go up. The only con is needing to hold the position and not become frightened when a crash eventually happens.
I don’t see a better investment for so little work.
> ETF like it is pretty safe investment with lowest expense ratio than mutual funds but never the cons,
I think you might be confusing actively managed funds with index funds, some of the lowest cost index funds are setup as mutual funds.
ETFs are only as safe as their underlying holdings. ETFs can be risky , now broad market equity index funds (that can be ETFs or MF) give you diversification but they can still be risky and equities are risky .
Probably the biggest cons of an ETF are
Bid/Ask spread- this is very minimal and honestly not really worth worrying about on major ETFs but there is a small bid/ask spread when buying just like stock
Can disconnect from NAV – Again very minimal risk but in some cases smaller ETFs or in market turbulence can case the ETF price to be removed from the underlying net asset value
Most of the time its when an ETF what trades on exchanges may hold assets that are not as liquid so it becomes a question , is the ETF actually pricing the assets right or is the ETF wrong? During the covid panic some bond ETFs were selling a rather large discounts from the underlying bonds. However you could argue that the ETFs were simply pricing those bonds fairly and the bonds themselves were priced wrong.
Another example from memory was there was some ETF that held Egyptian stocks, however during the 2011 revolution the Egyptian market was closed for weeks so no Egyptian stocks were trading, but ETFs on USA exchanges were. So the price was hard to estimate as there was no mechanism to arbitrage away price differences because the underlying holdings were not trading
However generally on popular broad based ETFs these are not an issue to worry about.