How to Make Money with ETFs
Learn everything you need to know in 'The ETF Investor's Handbook' for FREE from The Successful Investor.
ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.
Topic: ETFs
January 26, 2024|by Pat McKeough
Add Comment
To determine when to buy ETFs, some investors use technical analysis and other tools. But you need to dig deeper.
Investors often wonder: what is a good entry point when purchasing a stock or an ETF?
The first question before asking when to buy an ETF, when to when to buy etfs, is whether an exchange traded fund investment is right for your portfolio. An ETF investment is one of the most popular and most benign investing innovations of our time. ETF investments are a little like conventional mutual funds, but with two key differences.
How to Make Money with ETFs
Learn everything you need to know in 'The ETF Investor's Handbook' for FREE from The Successful Investor.
ETFs Guide for Canadian Investors: Find the best way to invest in ETFs with low fees, low risk & high satisfaction.
First, ETF investments trade on a stock exchange throughout the day, much like ordinary stocks. That immediately, help answer the question of when to buy ETFs. You can buy them through a broker whenever the stock market is open, and generally you pay the same commission rate that you pay to buy stocks. In contrast, you can only buy most conventional mutual funds at the end of the day. What’s more, commissions vary widely, depending on negotiations with your broker or fund dealer.
The second part of answering, when to buy ETFs involves the MER. The MER (Management Expense Ratio) is generally much lower on ETFs than on conventional mutual funds. That’s because most ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, traditional ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.
Traditional ETFs practice this “passive” fund management, in contrast to the “active” management that conventional mutual funds provide at much higher costs. Traditional ETFs stick with this passive management—they follow the lead of the sponsor of the index (for example, Standard & Poors). Sponsors of stock indexes do from time to time change the stocks that make up the index, but generally only when the market weighting of stocks change. They don’t attempt to pick and choose which stocks they think have the best prospects.
This traditional, passive style also keeps turnover very low, and that in turn keeps trading costs for your ETF investment down. It also supports our guidance that trying to time the market to determine when to buy ETFs is an unnecessary and fruitless exercise. Learning how to know when to buy an etf is a valuable skill for investors.
When to buy ETFs
Some investors decide when to buy an ETF with the help of technical analysis. Knowing how to know when to buy an etf using technical analysis can be useful.
Technical analysis is a useful tool, in deciding when to buy ETFs, but only if you recognize it as one of many tools. Before making any recommendations or transactions in client accounts, I always look at a chart. However, I don’t look at the chart for a prediction of what’s going to happen. I look to see if the pattern on the chart seems to support the view I’ve formed of the stock based on its finances and other fundamental factors.
I find it encouraging if the two seem congruent, and they usually do. But sometimes one contradicts the other, and that’s when I know I have to dig deeper, and perhaps wait until the situation clarifies itself.
After all, there’s a large random element in all stock price changes, even for ETFs, especially in the short term. When you focus on timing buy and sell decisions to improve your investment results, you are trying to come up with a system that can outguess a random factor. But a random factor is something you can’t outguess.
You can, however, offset the random factor indirectly, by taking advantage of our three-part Successful Investor approach. You can enhance our approach with a simple-but-not-easy tactic: Get used to the idea that when you decide to include a new investment in your portfolio, you should buy while there’s still some doubt in your mind.
If you wait to buy an ETF until you are sure it will pay off for you, you’ll probably pay a higher price. You are better off to buy sooner—when you are “pretty sure,” rather than “certain.” Learning how to know when to buy an etf at the right time is key.
By the time you’re sure an ETF is a good buy, many other investors may have come to share that opinion. This is another way of saying that investor expectations have risen. That usually means the stock has used up some of its immediate potential for gain.
By buying sooner, you of course increase the risk of a short-term loss on any one investment. But our three-part Successful Investor approach automatically offsets a lot of your overall risk. Developing a sense for how to know when to buy an etf can help manage risk as well.
What to buy is as important as when to buy ETFs
We think you should stick with “traditional” ETFs. However, when an investment product faces booming demand as ETFs do today, investment companies try to expand sales by creating new versions of the underlying formula.
These new ETFs use a conventional stock-market index as a base, but add their own refinements. These refinements are tailored to current investor preferences or prejudices. That’s distinctly different from the traditional ETF, which simply aims to mimic an index. These newer, theme varieties may attract attention—and sales—but they frequently carry higher MERs.
In some cases, the new ETF may provide investment benefits but not consistently. In fact, it may hurt results in the long run. The worst cases are bad enough to turn investor profits into losses. One sure result is that the higher MERs will cut into the value of your ETF portfolio every year.
Another drawback to the new ETF is how much easier it is for investors to act on an urge to invest in a specific stock or stock group without doing any messy and time-consuming research. If you want to invest in oil stocks or gold stocks or Swedish stocks or wind power stocks, or any of hundreds of other stock groups, you can act on that urge. However, that may not produce the best results.
Below is a list of 6 things you should consider before buying an ETF investment or deciding when to buy ETFs:
- ETFs can be volatile, even with the diversification they offer.
- Know how broad the fund is, so you can determine its volatility. The broader the ETF, the less volatility it may have. A sector-based ETF like one that tracks resource stocks may be more volatile.
- Know the economic stability of countries when investing in international ETFs. It’s also good to mention that foreign leaders may not be your ally when it comes to passing legislation that can affect your investments
- Know the liquidity of ETFs you invest in.
- Determine if the ETFs you buy will include capital gains distributions.
- Consider buying ETFs in a lump sum rather than periodic small amounts to cut down on brokerage fees.
It’s impossible to time the market, or eliminate all risk. But you have a variety of risk-cutting techniques to choose from, and some work better than others.
In summary, investing in ETFs can be a smart choice for many investors, but it’s important to understand the key factors to consider when deciding how to know when to buy an etf. Unlike conventional mutual funds, ETFs trade on stock exchanges throughout the day and generally have lower management expense ratios (MERs). Traditional ETFs practice passive fund management, mirroring the holdings and performance of a stock-market index. While technical analysis can be a useful tool in deciding when to buy ETFs, it should be combined with fundamental analysis. Investors should be cautious of newer, theme-based ETFs that may have higher MERs and increased volatility. Before investing in ETFs, consider factors such as the fund’s breadth, the economic stability of countries for international ETFs, liquidity, capital gains distributions, and brokerage fees. While it’s impossible to completely eliminate risk or perfectly time the market, understanding how to know when to buy an etf and utilizing a diversified investment approach can help manage risk and optimize returns.
How do you know when to buy an ETF? What signals do you look for? Share your thoughts in the comments below.
This article was initially published in March 2016 and is updated regularly.
Comments
Bill
This latest catastrophic drop in the stock markets of the world highlights the most glaring weakness of ETFs especially passive ETFs. The ETFs remain fully invested in the stoks they hold and so garner ALL of the down side . Mutual funds are mostly actively managed and so (as so many have ) sell many of the fund`s holdings and have large percentages of cash in their holdings which is thus able to be employed at market lows. The advocators of ETFs never tell you this fact so please use your brains when listening to advice which seems so one-sided !!
Log in to ReplyTSI Research
Thanks for your comment. Many ETFs are passively managed –passive fund management for ETFs involves investing to mirror the holdings and performance of a specific stock-market index. However, many are also actively managed (like the mutual funds you mention, although there are also a lot of index-linked mutual funds out there as well.)
Log in to ReplyBill
Therefore one must know how to distinguish between which ETFs are passive and which are actively managed. Thus I have now given you at TSI another topic to explain how we investors can recognize that distinction easily.
Log in to ReplyScott
Thanks for your reply! It’s a topic we cover in our Best ETFs for Canadian Investors newsletter. — TSI Research
Log in to Reply
Tell Us What YOU Think
You must be logged in to post a comment.
Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.
No-risk introductory subscription PLUS 3 FREE Special Reports
YES! I want TSI Best ETFs for Canadian Investors
Learn everything you need to know in'The ETF Investor's Handbook'FREE Special Report from The Successful Investor.
ETFs Guide for Canadian Investors:Find the best way to invest in ETFs with low fees, low risk & high satisfaction.
Get Your FREE Report Now:The ETF Investor's Handbook
X No thank you. I don’t want expert advice and guidance about making a fortune.
The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
The privacy of the site/store visitor is very important to TSI Network, and is respected at all times. The information we receive from customers helps us to personalize and continually improve your online experience at TSI Network.
We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
We are continuously in the process of improving our sites and services. If any new features or policies require a change to this current policy, we will post a clear notice of this change on pages of our site where the privacy policy appears. The principle behind this privacy policy is to collect information with your knowledge and consent.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
Automatic Information: We receive and store certain types of information whenever you interact with us. For example, like many websites, we use "cookies," and we obtain certain types of information when your web browser accesses TSI Network.
Information from Other Sources: For reasons such as improving personalization of our service (for example, providing better product recommendations or special offers that we think will interest you), we might receive information about you from other sources and add it to our account information. We also sometimes receive updated delivery and address information from our shippers or other sources so that we can correct our records and deliver your next purchase or communication more easily.
We do reserve the right, however, to collect and perform statistical analyses of the internet traffic to our website for our internal use. However, information collected does not allow us to identify any individual, and will not collect any personal information of the visitor. Furthermore, we do not sell, rent or loan to any outside parties the information collected and analyzed.
Although you may be able to access some of our websites without being required to register or provide personal information, certain websites and sections of our websites may require registration. In addition, if you choose to contact us to ask a question, we will collect your personal information so that we can respond to your question.
To make the visitor’s experience on our website easier, we may use per-session “cookies” (session identifiers) to track the state of the visitor session. This “cookie” is destroyed when your session with our website is over.
Cookies are alphanumeric identifiers that we transfer to your computer's hard drive through your web browser to enable our systems to recognize your browser and to provide features like "Remember Me" for our paying subscribers. Cookies are also used during the ordering process to help ensure your order is handled correctly. We do not extract any information about individual users or their computers as a part of this process.
The "Help" portion of the toolbar on most browsers will tell you how to prevent your browser from accepting new cookies, how to have the browser notify you when you receive a new cookie, or how to disable cookies altogether. However, cookies allow you to take full advantage of some of TSI Network's most useful features, and may be required to access certain areas of our website.
Internet Protocol (or IP) addresses are collected for all visitors to this site. This information is used for the purposes of traffic analysis.
Does TSI Network Use the Information It Receives?
"Contact Us" and Comment Features: TSI Network encourages visitors to its websites to contact us with questions and comments. Email addresses and other information of persons using these features may be collected in order to facilitate our responses to those inquiries.
Purchases of Merchandise: TSI Network websites may offer individuals the opportunity to purchase branded or other merchandise online. In connection with those purchases, customers may be asked to submit personal information, such as shipping addresses and credit card information, which is required to complete the transaction. TSI Network may also offer a Membership program, through which purchasers of its products may receive discounts on their online purchases. Membership registration may involve the submission of personal information to TSI Network and assignment of a user ID and password.
Agents: We employ other companies and individuals to perform functions on our behalf. Examples include fulfilling orders, delivering packages, sending postal mail and email, removing repetitive information from customer lists, analyzing data, providing marketing assistance, processing credit card payments and providing customer service. They have access to personal information needed to perform their functions, but may not use it for other purposes.
Promotional Offers: We may make our postal mailing list available to organizations offering products or services that might interest you. If you prefer NOT to receive these offers, please send an email with your name and address to [email protected] with "Do Not Rent Name" in the subject line. We do NOT make our email list available outside our organization.
Protection of TSI Network and Others: We release account and other personal information when we believe release is appropriate to comply with law; enforce the terms of the Legal notices that accompany this policy; or protect the rights, property or safety of TSI Network, our users or others. This includes exchanging information with other companies and organizations for fraud protection and credit risk reduction.
In addition to these limited disclosures of personal information, TSI Network may provide its affiliates or unaffiliated third parties with aggregate information about visitors to our sites. For example, we might disclose the median ages of visitors to our websites, or the numbers of visitors to our websites that come from different geographic areas. Such aggregate information will not include information of any individual visitors to our websites.
TSI Network may provide personal and other information to a purchaser or successor entity in connection with the sale of TSI Network, a subsidiary or line of business associated with TSI Network, or substantially all of the assets of TSI Network or one of its subsidiaries, affiliates or lines of business.
With Your Consent: Other than as set out above, you will receive notice when information about you might go to third parties, and you will have an opportunity to choose not to share the information.
Except as provided herein, TSI Network will not sell or rent personal information about you to unaffiliated third parties.
We may disclose personal information you have provided through our websites, for the above purposes, to persons or companies that we retain to carry out and other activities for which you have registered or in which you have otherwise asked to participate. In particular, we may for these purposes transfer information to any country (including the USA and other countries which may not offer the same level of data protection as Canada). We also will disclose personal information if required by law, including compliance with warrants, subpoenas or other legal processes.
TSI Network requires persons and companies to which it discloses personal information to restrict their use of such information to the purposes for which it has been provided by TSI Network, to adequately protect the information, and not to disclose that information to others. TSI Network cannot be responsible, however, for any damages caused by the failure of unaffiliated third parties to honour their privacy obligations to TSI Network. Similarly, TSI Network is not responsible for the privacy policies and practices of other websites that are linked to our websites.
COMMENTS: TERMS OF USE
We’re always happy to receive feedback, comments and ideas from TSI Network visitors, and we encourage you to add your perspective to any issue by leaving your comments on the site.
To make sure users get the most out of the site’s comments function, we’ve provided a few guidelines:
- Do not post threatening, harassing, defamatory, or libelous material.
- Do not intentionally make false or misleading statements.
- Do not offer to sell or buy any product or service.
- Do not post material that infringes copyright.
- Do not post information that you know to be confidential or sensitive or otherwise in breach of the law.
- TSI Network will not accept responsibility for information posted in the comments.
Please note that we reserve the right to delete or edit all comments. As well, we may close posts to further comments at our discretion. If a user repeatedly abuses our comment policy, we may also revoke that user’s access to our comments section.
By commenting on TSI Network, you agree that you retain all ownership rights in what you post on the site, and that you will relieve us from any and all liability that may result from those postings.
Special Note for Parents
TSI Network does not sell products for purchase by children. If you are under 18, you may use TSI Network's site only with involvement of a parent or guardian
How do we protect your personal information?
TSI Network does everything possible to prevent unauthorized intrusion to its websites and the alteration, acquisition or misuse of personal information by unauthorized persons. Notably passwords submitted by users of our websites are encrypted using encryption mechanisms. However, TSI Network cautions visitors to its websites that no network, including the Internet, is entirely secure. Accordingly, we cannot be responsible for loss, corruption or unauthorized acquisition of personal information provided to our websites, or for any damages resulting from such loss, corruption or unauthorized acquisition.
How do we maintain the integrity of your personal information?
TSI Network has procedures in place to keep your personal information accurate, complete and current for the purposes for which it is collected and used. You may review the information that you have provided to us and where appropriate you may request that it be corrected. If you wish to review your personal information please send a request to: [email protected].
How do I withdraw my consent to use Personal Information? Access, Correction, Inquiries and Complaints
If you wish to request access to, or correction of, your personal information in our custody or control, or find out how we've used or disclosed that information, please make your request in writing to us. We may need to verify your identity before searching for or providing you with personal information. In some circ*mstances, we may not be able to provide access to your personal information, for example if it contains the personal information of other persons, if it constitutes confidential commercial information, or if it is protected by solicitor-client privilege. If we deny your request for access to, or refuse a request to correct, your personal information, we will advise you of the reasons for this refusal.
If you do not want to receive promotional offers, please notify TSI Network by sending an email to [email protected].
How can you ask questions about our Privacy Policy and access your personal information?
The provision of information by you is entirely voluntary and you have the right not to provide information. Subject to applicable law, you may have the right to receive certain information as to whether or not personal information relating to you is held by TSI Network and to obtain a copy of such information that is sought. You may also have the right to require information, where appropriate, to be erased, blocked or made anonymous or to have data updated or corrected. If you do not wish TSI Network to hold information about you or if you wish to have access to information, modify information, or object to any processing of information or if you have questions please contact us.
What Choices Do I Have?
- As discussed, you can always choose not to provide information even though it might be needed to make a purchase or to take advantage of TSI Network features.
- You can add or update certain information as explained in the section "How Can I Change My Information?"
- If you do not want to receive email or other mail from us, please notify TSI Network by sending an email to [email protected].
- The "Help" portion of the toolbar on most browsers will tell you how to prevent your browser from accepting new cookies, how to have the browser notify you when you receive a new cookie, or how to disable cookies altogether. However, you will not be able to use important features of TSI Network sites if you do not use cookies.
Changes to this Policy
This Policy is the sole authorized statement of TSI Network's practices with respect to the collection of personal information through TSI Network's websites and the subsequent use and disclosure of such information. Any summaries of this Policy generated by third party software or otherwise (for example, in connection with the "Platform for Privacy Preferences" or "P3P") shall have no legal effect, are in no way binding upon TSI Network, shall not be relied upon in substitute for this Policy, and neither supersede nor modify this Policy.
TSI Network may revise this Policy from time to time.
Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
CLOSE
Enter Your Log In Credentials
- Lost your password? Create New Password
- No account? Sign up
