If you’re a Veteran ETF Investor, you’re a market participant with intermediate skills. You have actively maintained your own ETF portfolio by researching and selecting your own ETF investments. Your experience ranges from a few investments per month to a few trades per week over a small number of years. If your ideas originate from the news, financial magazines or friends, you’ve fully researched these opportunities to determine their suitability for your goals, as well as their potential opportunity and risks. You wield solid understanding of your personal risk tolerance and investment objectives. Your general market knowledge has likely deepened over time and you understand basic macroeconomic trends that influence the financial markets.
A veteran can assess an ETF’s current investment and allocation profiles as determined by the prospectus. You understand the components of an ETF may not match its target index, either with the actual securities in the portfolio or the weightings of those securities. You are savvy when analyzing costs and fees of potential ETF investments and are conscious of how these costs can impact performance. Veterans are better equipped to find answers and seek assistance when needed. As a Veteran ETF Trader, you’re probably aware of short selling, though only a handful of veterans will use this strategy themselves.
On the trading side of things, you may still battle your emotions when managing your positions and they may obscure the reality of the risk-reward relationship. Holding onto winners longer while cutting losses short is the veterans’ aim, but perhaps you fall short at times. As a veteran, you’re better able to see the writing on the wall and may actively move to cash when experiencing market volatility instead of becoming a “deer in headlights.” At the same time, many veterans don’t fully grasp the pitfalls of day trading and may not understand the classification of pattern day trader or day trading rules. You are better at understanding the importance of liquidity than in your rookie days, but some veterans’ enthusiasm may lead them to trade illiquid issues when they know they shouldn’t.
You have grown from reading just the first page or two of the prospectus, to digesting the document in its entirety to ensure the ETF’s portfolio and the fund’s objectives are inline with your own. As an ETF veteran, you are fully aware that ETFs can go up and down in value and that your ETF shares can become worth more or less than their original cost. As a veteran, you know not to be lured solely by a successful track record because you realize past performance will not necessarily lead to gains in the future. You understand the risks of ETFs are similar to those of stocks. If you decide to trade specialized ETFs, you know they entail more complicated market risks.
As a Veteran ETF Investor, here are the concepts you should master:
- Understand the full terms of the prospectus
- The tax consequences and ramifications of different types of ETFs
- The skill to contrast ETFs and mutual funds in a meaningful way to determine which type of investment is better suited in certain conditions.
- The ability to compare fees and expense ratios between ETFs and mutual funds with similar market performance
- How to create and manage advanced orders
- The basics of short selling and technical analysis if you are prepared to manage the risks these strategies may involve
Veteran ETF Investors can improve their skills by:
- Reviewing ETF strategies geared to the veteran skill level
- Continuing to use TradeKing’s ETF Screener to find potential investment opportunities
- Reviewing Determining Market Outlook
- Beginning to develop personal methods for finding investments
- Considering different ways to manage equity holdings
- Engaging members of the Trader Network to work through investing or trading ideas
- Engaging members of the Trader Network to explain their analysis
- Challenging members of the Trader Network with an alternative point of view
- Journaling your trades with Trade Notes to record your thought process
- Educating yourself in how to invest with other types of securities like stocks, options, bonds, etc.
- Anticipating and planning for all possible outcomes for your investments, not just the positive scenarios
- Attending or watching TradeKing’s free educational webinars, geared to the veteran skill level
Veteran ETF Investors should steer clear of the following:
- Resist the urge to buy specialized or non-traditional ETFs
- Do not invest in illiquid ETFs with an average daily trading volume of less than two million shares
- Do not sell ETFs short without fully understanding the potentially unlimited risk involved
- Limit the role your emotions play in your investing strategy