What is the safest ETF to invest in?
Low-risk ETFs like Invesco S&P 500 High Dividend Low Volatility ETF SPHD, Simplify Tail Risk Strategy ETF CYA, Cambria Tail Risk ETF TAIL and AGF U.S. Market Neutral Anti-Beta Fund BTAL could be compelling choices. These ETFs are designed for investors who prioritize capital preservation over high returns.
Low-risk ETFs like Invesco S&P 500 High Dividend Low Volatility ETF SPHD, Simplify Tail Risk Strategy ETF CYA, Cambria Tail Risk ETF TAIL and AGF U.S. Market Neutral Anti-Beta Fund BTAL could be compelling choices. These ETFs are designed for investors who prioritize capital preservation over high returns.
- ProShares Bitcoin Strategy ETF (BITO)
- Invesco QQQ Trust (QQQ)
- Vanguard Information Technology ETF (VGT)
- VanEck Semiconductor ETF (SMH)
- Invesco S&P MidCap Momentum ETF (XMMO)
- SPDR S&P Homebuilders ETF (XHB)
- Invesco S&P 500 GARP ETF (SPGP)
| Money market fund | Expense ratio | 7-day SEC yield |
|---|---|---|
| Schwab Municipal Money Fund - Investor Shares (SWTXX) | 0.34% | 3.3% |
| Vanguard Ultra-Short Bond ETF (VUSB) | 0.10% | 5.1%* |
| Global X 1-3 Month T-Bill ETF (CLIP) | 0.07% | 5.2%* |
| Alpha Architect 1-3 Month Box ETF (BOXX) | 0.19% | 5.8%** |
Market risk
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment.
All investments carry some risk, and Vanguard ETFs are no exception. But Vanguard is a fund provider with a reliable company history, and well-diversified ETFs tend to be safer than individual stocks.
ETFs are less risky than individual stocks because they are diversified funds. Their investors also benefit from very low fees.
There are many ways an ETF can stray from its intended index. That tracking error can be a cost to investors. Indexes do not hold cash but ETFs do, so a certain amount of tracking error in an ETF is expected. Fund managers generally hold some cash in a fund to pay administrative expenses and management fees.
| Symbol | Name | Avg Daily Share Volume (3mo) |
|---|---|---|
| SPY | SPDR S&P 500 ETF Trust | 73,711,102 |
| TQQQ | ProShares UltraPro QQQ | 72,739,305 |
| SOXL | Direxion Daily Semiconductor Bull 3x Shares | 71,673,344 |
| XLF | Financial Select Sector SPDR Fund | 47,652,930 |
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
How long should you hold an ETF?
Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.
Mutual funds and ETFs may hold stocks, bonds, or commodities. Both can track indexes, but ETFs tend to be more cost-effective and liquid since they trade on exchanges like shares of stock. Mutual funds can offer active management and greater regulatory oversight at a higher cost and only allow transactions once daily.
Because of their wide array of holdings, ETFs provide the benefits of diversification, including lower risk and less volatility, which often makes a fund safer to own than an individual stock. An ETF's return depends on what it's invested in. An ETF's return is the weighted average of all its holdings.
It is unlikely for its asset to go up 100% in a single day and so, an ETF can't become zero. An ETF follows a particular index and the securities are present at the same weight in it. So, it can be zero when all the securities go to zero.
As the old cliché goes, you do not want to put all your eggs into one basket. An ETF can guard against volatility (up to a point) if some stocks within the ETF fall. This removal of company-specific risk is the biggest draw for most ETF investors.
Key Takeaways. ETFs can be safe investments if used correctly, offering diversification and flexibility. Indexed ETFs, tracking specific indexes like the S&P 500, are generally safe and tend to gain value over time. Leveraged ETFs can be used to amplify returns, but they can be riskier due to increased volatility.
When the market cratered, investors withdrew $16.4 billion from Vanguard's index mutual funds. What accounts for remaining index mutual fund outflows? Johnson says it could be clients pulling out money because they're retiring, or because they're negatively affected by the pandemic.
- High-yield savings accounts.
- Money market funds.
- Short-term certificates of deposit.
- Series I savings bonds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
While Fidelity wins out overall, Vanguard is the best option for retirement savers. Its platform offers tools and education focused specifically on retirement planning.
Vanguard S&P 500 ETF holds a Zacks ETF Rank of 2 (Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VOO is a great option for investors seeking exposure to the Style Box - Large Cap Blend segment of the market.
Can you lose more than you invest in ETFs?
Hypothetically: Yes. Practically: No. ETFs are stocks which derive their values from the underlying stocks of net assets of an investment. These investments are not guaranteed and as such could ALL go to $0 in which your NAV would be $0.
Before purchasing an ETF there are five factors to take into account 1) performance of the ETF 2) the underlying index of the ETF 3) the ETF's structure 4) when and how to trade the ETF and 5) the total cost of the ETF.
For most standard, unleveraged ETFs that track an index, the maximum you can theoretically lose is the amount you invested, driving your investment value to zero. However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely.
A leveraged ETF's price can theoretically go negative, but it's extremely rare and usually only happens in extreme market conditions. Leveraged ETFs use financial leverage to amplify the returns of an underlying asset, such as the S&P 500 Index.
ETFs have several advantages for investors considering this vehicle. The 4 most prominent advantages are trading flexibility, portfolio diversification and risk management, lower costs versus like mutual funds, and potential tax benefits.
