12 February 2016

About ETF

What is an ETF? An ETF is Exchange Traded Fund. Its usually tracks indices, commodities, bonds, etc. Although ETF can be bought, sold or hold like shares, not all ETFs are recommended.

Most people have the misconceptions that all ETFs are better than individual stocks as they are more diversified and the cost will be lowered due to owning a baskets of financial assets. However individual investor need to take note that ETFs can also track only a few concentrated sectors of shares and it can also has a high expense ratio also which will "eat" away the returns that individual investors ought to get in the long run.

So rule of thumb is; unless the individual ETF has a diversification of at least 30 stocks (preferably good quality companies) and a very low expense ratio, then its is recommended to hold long term, especially for the case of index ETF which personally I believe that index in the long run will be in uptrend.

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