ETF Disadvantages & Mistakes

Of course, an ETF is generally much less risky than an individual share because the price does not depend on a single company. But investing in ETFs also has disadvantages and you can make many mistakes. Here are the 6 biggest ETF disadvantages & mistakes and how you can avoid them.

Investing without thinking

Your circle of friends is talking about investing and ETFs. Now you want to get started and trust your friend's opinion. You invest blindly.

...ouch!

    One of the biggest mistakes you can make in investing in general and also applies to ETFs: invest first, then inform - please don't make this mistake!

There is nothing worse than an investor who invests without thinking, doesn't understand the mechanisms and then, out of fright, dumps his shares at the first sign of a crisis and takes flight like a young deer.

Everyone starts small and makes mistakes. On the stock exchange we call that "apprenticeship money". Fortunately, my learning curve has been limited so far and the only mistake I made with ETFs was buying a swap ETF instead of a physically replicating ETF.

    How can I avoid making this mistake? To avoid this mistake, I can recommend my Stock Market for Beginners article or you can do some research on your own and watch some YouTube videos. You can find the information you need everywhere these days.

Herd behaviour, impatience and emotions

The stock market is a constant up and down like a roller coaster. If you have a strategy and invest in broad ETFs through a savings plan, I assure you that price fluctuations don't matter.

I recommend you read this article - trade bitcoin Exness because it shows exactly what it's like to stay in the market every month to whatever events occur.

By the way, you can read how I reacted during the last stock market crash in another article.

In the end, the top priority and why I want to educate more people with my ETF savings plan comparison is to stay patient and calm. Investing in ETFs is something for the long term and will bear fruit if you remain patient.

    How can I avoid the mistake? A downward fluctuation should not be taken immediately as a reason to panic. Investments in ETFs should be looked at in decades, not weeks or months. Stop checking your securities daily and keep your hands off the "sell" button!

Trend ETFs and low diversification

Especially if investors have little experience with investments, they run the risk of jumping on trends without the necessary foresight. Bitcoin/crypto ETFs or hydrogen ETFs are currently very popular. But if you've read the articles, it must be clear to you: trend ETFs don't have to be a long-term investment, but are a short-term bet that the sector will win more than the market.

The ETF disadvantages that come to the fore here: The price here can fluctuate greatly. In addition, the diversification of trend ETFs is often very low. If we talk about more than 1,000 stock titles that one buys with an ETF in the case of MSCI World ETFs or broader MSCI ACWI ETFs, trend ETFs are hardly diversified at all, depending on the sector. Such a trend ETF can sometimes contain only 1 to 10 securities, which increases the risk of loss enormously.

At the same time, the fund volume for new ETFs is very low. The lower the fund volume, i.e. the money that is invested in the ETF, the less economical it is. An ETF can be liquidated due to inefficiency, which can bring you losses. I recommend a fund volume of at least 500 million euros/USD in order not to go wrong.