If you are looking to diversify your portfolio, consider purchasing exchange-traded funds, or ETFs, which are baskets of securities pooled in one investment. ETFs can be cheaper in cost and offer less risk than other investments.
The funds investment process is a key factor in your selection of an ETF.
Ben Johnson, director of global exchange-traded fund research for Morningstar said that the investment process of ETFs will have the greatest impact on long-term returns and the level of risk they take in generating those returns, whether they track and index, are actively managed or fall somewhere in between.
Costs are important to consider when researching and buying ETFs.
Ben Johnson, director of global exchange-traded fund research, said every penny an investor pays in fees is a penny that doesn't grow to be a nickel, a dime, or a quarter over the long term.
Johnson said that a tight rein on fund fees is a key factor in long-term investment success.
ETFs tend to be more tax-efficient than traditional open-end mutual funds, according to Johnson.
In recent years, he said that the tax efficiency of the ETFs has been a key factor in mutual funds, as they have been plagued by investor withdrawals, which have resulted in large taxable capital gains distributions for investors.
Performance covers points like returns, risks and how the investment holds up in different market conditions, according to Tom Lydon, vice chairman at VettaFi. There are many companies that provide the performance history of ETFs to help you make informed investing decisions.
Lydon said that an investor should consider his or her individual investment goals and time horizons beyond picking an ETF based on their individual merits.
He said that someone who is in her 20s and just starting to build a portfolio may have more leeway to take on greater risks to enhance capital growth than someone in her 70s who is relying on a stable retirement nest egg to generate steady income for his or her Golden Years.