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More and more investors are turning to exchange traded funds (ETFs) as a cost-effective option to meet a variety of financial goals. Despite their growing popularity, there are still misconceptions about what ETFs are and how to use them in your portfolio.
Here’s the real story.

 

ETF Myth 1 Myth #1: ETFs are volatile because they trade throughout the day.

Reality: ETF prices are transparent, but that doesn’t make them more volatile.

The price of an ETF reflects the changing value of its underlying securities; the same is true for mutual funds. The difference is that the price of a mutual fund is set once a day after the market closes, while ETF pricing changes throughout the day in real time. This doesn’t mean that ETFs are more volatile – their price changes are just more visible. You can learn more about the differences between ETFs and mutual funds here.

ETF Myth 1
Myth #1: ETFs are volatile because they trade throughout the day.

Reality: ETF prices are transparent, but that doesn’t make them more volatile.

The price of an ETF reflects the changing value of its underlying securities; the same is true for mutual funds. The difference is that the price of a mutual fund is set once a day after the market closes, while ETF pricing changes throughout the day in real time. This doesn’t mean that ETFs are more volatile – their price changes are just more visible. You can learn more about the differences between ETFs and mutual funds here.

 

ETF Myth 2 Myth #2: ETFs are inherently risky.

Reality: Risk is driven by the assets you're investing in, not necessarily the vehicle used to access the assets.

Just like a mutual fund, the risk profile of an ETF is tied to its underlying holdings, or the assets it invests in: so a mutual fund and ETF that hold similar stocks or bonds will have similar risk profiles. For example, an international stock ETF or mutual fund may have higher risks than a U.S. investment grade corporate bond ETF. But that risk is not related to whether you choose to hold a mutual fund or an ETF.

On the flip side, an ETF offers greater diversification than an individual stock, which may help reduce risk in a portfolio.

ETF Myth 2
Myth #2: ETFs are inherently risky.

Reality: Risk is driven by the assets you're investing in, not necessarily the vehicle used to access the assets.

Just like a mutual fund, the risk profile of an ETF is tied to its underlying holdings, or the assets it invests in: so a mutual fund and ETF that hold similar stocks or bonds will have similar risk profiles. For example, an international stock ETF or mutual fund may have higher risks than a U.S. investment grade corporate bond ETF. But that risk is not related to whether you choose to hold a mutual fund or an ETF.

On the flip side, an ETF offers greater diversification than an individual stock, which may help reduce risk in a portfolio.

 

ETF Myth 3 Myth #3: ETFs are only useful if you’re looking to invest in a specific piece of the market.

Reality: You can use ETFs for a wide range of exposures and outcomes.

iShares ETFs come in virtually any “flavor” you can think of. They offer low-cost access to specific markets (e.g., a country or industry), AND to broad exposures (e.g., the S&P 500 or the entire U.S. bond market). This, combined with the ease and speed with which they can usually be bought and sold, means that investors can access investments that may otherwise be out of reach.

So whether it’s hard-to-access foreign markets, core building blocks for your portfolio, or funds that target specific outcomes, there’s an iShares ETF that can help. Explore more ways you can use iShares ETFs here.

ETF Myth 3
Myth #3: ETFs are only useful if you’re looking to invest in a specific piece of the market.

Reality: You can use ETFs for a wide range of exposures and outcomes.

iShares ETFs come in virtually any “flavor” you can think of. They offer low-cost access to specific markets (e.g., a country or industry), AND to broad exposures (e.g., the S&P 500 or the entire U.S. bond market). This, combined with the ease and speed with which they can usually be bought and sold, means that investors can access investments that may otherwise be out of reach.

So whether it’s hard-to-access foreign markets, core building blocks for your portfolio, or funds that target specific outcomes, there’s an iShares ETF that can help. Explore more ways you can use iShares ETFs here.

 

ETF Myth 4 Myth #4: ETFs aren’t for income investors since they don’t pay dividends.

Reality: iShares ETFs offer a diverse set of solutions for investors looking for income.

The hunt for income can be challenging. But whether it’s through dividend-paying stocks or fixed income exposures, iShares ETFs offer investors a broad range of opportunities to potentially generate income. And with iShares ETFs, you get the added benefit of greater diversification than an individual stock or bond, all at 1/3 the price of a typical mutual fund.1

ETF Myth 4
Myth #4: ETFs aren’t for income investors since they don’t pay dividends.

Reality: iShares ETFs offer a diverse set of solutions for investors looking for income.

The hunt for income can be challenging. But whether it’s through dividend-paying stocks or fixed income exposures, iShares ETFs offer investors a broad range of opportunities to potentially generate income. And with iShares ETFs, you get the added benefit of greater diversification than an individual stock or bond, all at 1/3 the price of a typical mutual fund.1

 

ETF Myth 5 Myth #5: ETFs are just for day traders.

Reality: iShares ETFs are effective investment tools for many types of investors.

Because ETFs have the same trading flexibility as stocks, short-term traders can use ETFs to quickly move in and out of a position, using limit, market or stop-loss orders. But ETFs are also a cost-efficient way to build a long-term, core portfolio. In fact, almost 80% of ETF investors view them as long-term holdings with an average holding period of nearly 6 years.2 You can learn more about how investors are thinking about and use ETFs in our ETF Pulse survey.

ETF Myth 5
Myth #5: ETFs are just for day traders.

Reality: iShares ETFs are effective investment tools for many types of investors.

Because ETFs have the same trading flexibility as stocks, short-term traders can use ETFs to quickly move in and out of a position, using limit, market or stop-loss orders. But ETFs are also a cost-efficient way to build a long-term, core portfolio. In fact, almost 80% of ETF investors view them as long-term holdings with an average holding period of nearly 6 years.2 You can learn more about how investors are thinking about and use ETFs in our ETF Pulse survey.