3 Tips for Picking the Right ETF to Buy

Source: Thinkstock

Source: Thinkstock

ETFs have altered the investment landscape for retail investors. Many investment opportunities that were simply not available to smaller retail investors are now an essential part of any solid investment strategy. Investors can pick ETFs that give them exposure to the following sorts of assets:

  1. Direct exposure to commodities from gold to sugar to oil.
  2. Exposure to foreign stocks, even in esoteric regions from Columbia to Vietnam to the Middle East.
  3. Exposure to alternative strategies such as short selling, long/short equity exposure, buy-write strategies for enhanced income.
  4. Exposure to foreign currencies.
  5. Exposure to bonds and bond indexes.

It used to be that in order to get this sort of exposure you needed to have a lot of money and risk tolerance. For instance, regarding commodities you couldn’t get exposure in the past without playing in the futures market, which means taking on a lot of leverage and betting against some of the most sophisticated traders in the world. If you wanted to buy foreign stocks your broker actually had to go to Australia or to Peru in order to buy stocks for you. Brokers typically won’t do such things for their clients unless they have a lot of money. Now you can invest in all sorts of global assets with just a few hundred or thousand dollars.

But how do you choose ETFs? There are so many out there, and given the speed with which the ETF industry is growing, more players want a piece of the action, which means that there are even more funds out there. In order to pick the best ETFs, follow these tips.