What are some risks when investing in ETFs?

Listing some down below:

1. Market Risk

Since ETFs is essentially tracking the entire market, a downturn would cause ETFs to go down. This counts as one of the main risks.

2. Hype/Buzz Risk

This is not usually mentioned, but an important one in my opinion. Just based on the number of ETF-related questions on Seedly itself (close to 300 and counting), it is clear that the interest in ETFs have risen in the last few years. Think herd mentality. Stay true to your strategy and the fundamentals, and not be tempted because everyone is getting in it.

3. Tracking Risk

Happens when ETF does not mimic index it is tracking due to management fees, dividend timing and how they treat tax. Note that ETFs that use physical replication historically show larger tracking errors compared to those that use synthetic replication.

Hi there! The biggest risk in ETFs is market risk. For instance, if you buy an S&P500 ETF and the S&P goes down, you will also make a loss. The second risk is index risk. Since ETFs are not actively managed, it will not sell a security if the security is in financial trouble. This means that 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. Another consideration is the trackering error. The tracking error represents the difference between the performance, or return of the ETF and the underlying index. Investors are at risk when the ETF does not match the performance of the index, showing a high tracking error. Other risks include currency risk and counterparty risks.