How to analyze any ETF in just 30 seconds
Dec 08, 2024Hello Stoic Investors,
Today I want to share 5 simple checks that will help you choose the right ETF for your portfolio.
With so many options out there, it’s easy to get overwhelmed, but these checks will guide you to make informed and confident decisions.
1. Benchmark: Keep It Simple
Always stick to benchmarks you understand.
Avoid complex or obscure indices—they’re often harder to track and assess.
If you can’t explain it in one sentence, it might not be the best choice.
2. Return: Understand the Why
If the ETF’s return is higher or lower than the market, dig deeper.
What’s driving this difference?
Is it market conditions, the sector focus, or hidden risks?
Always know why you’re getting what you’re getting.
3. Cost: Keep Fees in Check
Avoid ETFs with an expense ratio above 0.50%.
Ideally, look for ETFs in the 0.1-0.2% range.
Over time, high costs can eat into your returns, so keeping expenses low is key.
4. Replication: Go Physical
Choose physically replicated ETFs (or sampled ones) over synthetic ETFs.
Physical ETFs actually own the underlying assets, while synthetic ones rely on financial instruments, adding unnecessary risk.
5. Dividends: Accumulate, Don’t Distribute
I personally prefer accumulating ETFs, which automatically reinvest dividends back into the fund.
This reinvestment increases the value of your investment over time and helps you take full advantage of compounding returns.
This avoids the need to pay taxes on dividend payouts, letting your investment grow faster over the long term.
These checks are simple to apply, and the good news is that all this information is readily available on websites like JustETF.com
Just search for the ETF you’re considering, and you’ll find detailed data on benchmarks, costs, returns, and more.
By following these principles, you can simplify your decision-making process and focus on what really matters—building long-term wealth.
So, note down these 5 things to choose the right ETF and start investing today:
1. Benchmark: The index the ETF tracks—make sure it’s simple and clear.
2. Return: The ETF’s performance compared to the market—understand why it’s different.
3. Cost: The expense ratio—keep it low to maximize your returns.
4. Replication: How the ETF invests—physical or sampled is safer than synthetic.
5. Dividends: Choose accumulating ETFs to reinvest dividends automatically.
