Posted on 27 April 2012.
Exchange Traded Funds (ETFs) have been one of the most talked about financial products on Wall Street in recent years because Exchange Traded Funds have provided access to a wide variety of investments and asset classes that used to be difficult or impossible for individual investors to access. However, many investors have brought various Exchange Traded Funds without understanding the substantial Exchange Traded Funds risks that they need to understand prior to investing in Exchange Traded Funds.
Exchange Traded Funds include a wide variety of very different investment products that derive their valuations from many different financial instruments. Exchange Traded Funds can derive their value from financial instruments that are associated with various asset classes, such as: stocks, bonds, real estate, and commodities, and can also focus on a particular market segment, region, or country, all of which can cause specific Exchange Traded Funds risks.
Some Exchange Traded Funds carry with them considerably more Exchange Traded Funds risks than others. It is very important that investors contemplating investing in Exchange Traded Funds read the fund’s prospectus and other sources of information about the fund to gain a clear understanding regarding how the fund derives its value and the specific Exchange Traded Fund risks associated with owning the Exchange Traded Fund.
While not a complete list of Exchange Traded Funds risks, the following are some of the more important Exchange Traded Funds risks that investors need to be aware of:
To avoid excessive Exchange Traded Funds risks, an investor should make sure that they clearly understand how an Exchange Traded Fund derives its valuation and the specific Exchange Traded Funds risks associated with the Exchange Traded Fund under consideration, prior to investing. For investors uncomfortable with Exchange Traded Fund risks, no-load managed mutual funds that track similar indexes or financial products may be more suitable investments.
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