Looking to invest in ETFs. What are some risks?

Another form of risk is from transaction expenses. To rebalance the ETF portfolio according to the index, there also transactions expenses relating to the buying or selling of shares. These expenses may not be revealed in the performance of the index, but it is something to take note of because these expenses basically erode your returns.

Another form of risk that you might want to take note of is also exchange rate risk, if you are investing in an ETF overseas. This is just the risk that occurs from changes in the exchange rate, which is a risk that all overseas investments or ventures will always involve. This probably means more active management of your portfolio, and more caution about where the currency is moving towards.

Hello!

Some risks in investing in ETFs include market risk and index risk. For market risk, If you buy an S&P500 ETF and the S&P goes down, you will also make a loss. Index risk refers to the lack of active management of the fund. Since ETFs are not actively managed, it will not sell a security if the security is in financial trouble. This means the ETF will move up and down with the index and the ETF manager will not take defensive positions, or sell losing positions in a market downturn.