LifeGoal Investments Blog
How to Choose A Low-Risk ETF
How To Choose A Low-Risk ETFWhere is the market headed over the next 30-60-90 days? No one knows for certain. Especially as the world continues to feel the effects of inflation, fears the war in Ukraine, and is uncertain about the central bank policy.
Growth investing is where many investors are turning, to balance their portfolios and protect them to the best of their ability against stock market volatility. We use the term “protect” lightly, as there is always a risk associated with investing.
Exchange-traded funds are one of many growth investments. Familiar with them? If not, let’s introduce you to them, especially the low-risk ones, next.
ETFs, or exchange-traded funds, are low-risk, low-cost, diversified investments traded on the stock market.
Trading similarly to stocks, ETFs have can be:
- Purchased on margin
- Sold short
- Traded at a value refreshed throughout the day, using a ticker symbol
Here are some items to consider before deciding on an ETF:
- Cost to trade - this can exceed the savings investors receive on management fees depending on the trading frequency. Review the costs for commissions in addition to other fees.
- Careful of the spread - There are two prices associated with buying an ETF. The first is the bid, the second is the ask. Between the bid and the ask is the spread. A high spread is not beneficial, so before buying compare the market price to the intraday value.
- Management fee - most ETFs come with reduced management fees, but not all of them. This is often called management fee creep and is caused by an increase in marketing expenses by the ETF company or the price to license indexes. Check the expense ratios in comparison to its reciprocal traditional market index fund.
- Tracking errors - Errors happen and tracking errors with ETFs oftentimes occur with the performance as opposed to its corresponding index.
- Expected returns - Don’t get caught in the influences companies make to sell their products versus a competitor’s, claiming that theirs may outperform the other or reach higher benchmarks.
- Dividend yield - Yes, ETFs may come with dividends, or they may not. Many that do not have high yields, though, in comparison to those stocks.
Low-risk investors aren’t protected by loss, though. And in terms of gains, the margin may be smaller in the short term. That’s because low risk investing requires time for results to show. list of investments low-risk investors may be interested in:
- High-yield savings accounts - similar to a regular savings account except that the account carries a higher interest rate.
- Money market accounts - flexible savings accounts earning compound interest; however, to open the account a large minimum deposit may be required, or a minimum balance must be maintained to avoid account fees.
- Corporate bonds or Series I savings bonds - a secure form of investment whereas investors loan money with the expectation to receive interest on a monthly, quarterly, or annual basis through the date of maturity.
- Certificates of deposit - if you don’t mind your money tied down for a specified period, a CD may be right for you as this type of investment earns a competitive interest rate and carries a maturity date.
Because they are low risk, there are a few areas at stake. Liquidity may become an issue, for example, as the funds need to sit tight to accumulate growth.
Portfolios may also become affected by inflation, depending on how quickly it increases.
If you are a low-risk investor, the answer to this question is likely to be yes. It can be frustrating to lose money, so why not tailor your investment strategy so that you can still gain money in the long-run, and have a reduced risk of loss?
- Diversification - Mix up those securities to reach your growth goals. A healthy mix of stocks, bonds, and more could keep your wealth in check. Think of it like a seesaw. If economic factors bring the value of one industry or sector down, the weight of the others could keep it from hitting the ground.
- Dollar-cost averaging - consistent investing is a strategy investors use, contributing a set amount on a pre-determined basis no matter what the price may be at that given time. This is a solid way to remove emotion from the equation.
- Allocation - have you checked your portfolio lately and assessed how your assets are spread? Perhaps there is an imbalance between stocks and bonds, and it needs some TLC? The allocation of a portfolio could turn a low risk into a high-risk, so it’s best to keep an eye on it.
- Herd mentality - monkey see, monkey do. Don’t let this be you. It’s easy to follow along with what the crowd is doing but remember - their investment goals may be different than yours and following them may not provide the outcome you expected.
- Timing the market - If it were possible to time the market perfectly, everyone would be rich beyond their wildest dreams. But they are not. The market is unpredictable; changing based on numerous factors such as economic factors, global politics, and more.
- Hold the emotion - Emotions can take the wheel, and investors don’t want to be the passenger on this ride. Moving between bull and bear markets is tedious, and the mind can easily play tricks on you. Supply and demand will shift, but only you can make the best decision with your investment goals in mind.
According to VettaFi ETF Database, here are three that were popular on the market as of May 23, 2022.
Large-cap ETFs invest in companies with a minimum of $10 billion in market capitalization. On average, the expense ratio is 0.57%.
Here are a few additional facts about USMV:
Expense Ratio: 0.15%
Volume: Average 1 month = 3.7M
Trading Prices (52-week range): $66.99 - $81.33
Annual Dividend Rate: $1.08
Date of Inception: 10/18/2011 JPST. This ETF falls into the category of money markets, being that it invests in short-term debt.
Here are a few additional facts about JPST:
Expense Ratio: 0.18%
Volume: Average 1 month = 3.9M
Trading Prices (52-week range): $50.21 - $50.56
Annual Dividend Rate: $0.41
Date of Inception: 05/17/2017 SPLV. This ETF consists of some of the largest companies in the U.S. The securities included are called “blue chips,” consisting of well-known companies including Apple, IBM, ExxonMobil, and more.
Here are a few additional facts about SPLV:
Expense Ratio: 0.25%
Volume: Average 1 month = 5.9M
Trading Prices (52-week range): $55.59 - $68.52
Annual Dividend Rate: $0.98
Date of Inception: 05/05/2011
Consider ETFs for stress-free investing, adding growth to your pocket in the long term. Low-risk ETFs limit risk, making them a smart option when investing your hard-earned cash.
Visit LifeGoal Investments to learn more about our featured ETFs trading on the stock exchange. Our ETFs are risk-managed, diversified, and built for “boring success.”
For current performance and holdings, please visit https://lifegoalinvestments.com/hom
For current performance and holdings, please visit https://lifegoalinvestments.com/savn
For current performance and holdings, please visit https://lifegoalinvestments.com/wlth
Carefully consider the Fund’s investment objective, risks, charges, and expenses before investing. This and other additional information may be found in the statutory and summary prospectus, which may be obtained by calling 1-888-920-7275, or by reading the prospectus. Read the prospectus carefully before investing.
Distributed by Foreside Fund Services, LLC. Member FINRA.
ETFs are only one option when seeking to achieve goals. Prior to investing in any of the LifeGoal ETFs you should consult with your financial advisor to determine whether the specific funds are appropriate for you and, if so, how your investment plan should be implemented. The LifeGoal ETFs are not intended to be short term savings vehicles for payment of monthly expenses.
IMPORTANT RISK INFORMATION:
Investing involves risk, including loss of principal, and there is no guarantee that that Fund will meet its investment objectives. The value of a fund’s shares, when redeemed, may be worth more or less than their original cost. The Fund bears all risks of investment strategies employed by the underlying funds, including the risk that the underlying funds will not meet their investment objectives. ETFs may trade in the secondary market at prices below the value of their underlying portfolios and may not be liquid. Fixed income investments are affected by a number of risks, including fluctuation in interest rates, credit risk, and prepayment risk. In general, as prevailing interest rates rise, fixed income prices will fall. Lower-quality bonds present greater risk, including an increased risk of default. An economic downtown or period of rising interest rates could adversely affect the market for these bonds and reduce the Fund’s ability to sell its bonds. The lack of a liquid market for these bonds could decrease the Fund’s share price. Investments in international markets present special risks including currency fluctuation, the potential for diplomatic and political instability, regulatory and liquidity risks, foreign taxation, and differences in auditing and other financial standards. Exposure to the commodities market may subject the Fund to greater volatility than investments in traditional securities. The Fund is a new ETF with a limited history of operations for investors to evaluate.
Investments made through an ETF and the results that those investments generate are not expected to be the same as those made through any other ETF from LifeGoal Investments, including one with a similar name. Additionally, a new or developing ETF’s performance may not be representative of how that ETF will perform in the future. Newer ETFs that are still developing may not yet have the assets to reach efficient investing and trading status. Furthermore, certain factors may affect the performance of a smaller or developing ETF in its early stages. An ETF may need to sell portions of its portfolio at certain points due to unpredictable purchasing patterns. However, the changes in an ETF’s overall value as the result of an unexpected portfolio change are not expected to be representative of the ETF’s long-term performance.