Recently I was reading an article about some of the exoteric ETFs that have been created recently. One of the people quote in the article had something to say that I thought made good sense not just for these specialized ETFs, but for all investments.
“There is a tremendous spectrum of sophistication, complexity and risk in the ETF universe, and some products are not for everybody. If you can’t figure out in 10 minutes what drives the price of an ETF and what its risk factors are, you should probably find something else that you can understand in 10 minutes”.
This does not mean by any means that 10 minutes is all that you should spend understanding an investment. It may take many hours or weeks or months to know the whole story about a particular stock, bond, piece of real estate, etc. But if you can’t get a handle on the risks and why it’s priced the way it is, that investment probably isn’t appropriate for you. And truth to tell, it may not be appropriate for anyone. Complexity often hides the truth.
By the way, many ETFs are pretty straightforward and are good investments. But some would take far more than 10 minutes to understand.