@Jeff This is a very tricky question but let me try and break it down for you in two ways, technically driven and advice-driven:
- Technically driven
1.1) Cost - the benefits of actively or passively managed ETFs is cost. I would check the TIC, Total Investment Cost. This is the TER + trading costs. (Morningstar has TIC costs as we pull allot of their data). The reason for not checking the TER ratio as much anymore, is because allot of funds end up trying to beat their benchmark, underlining asset, and end up spending allot on trading costs through short-term gains. So TIC is very important.
1.2) Liquidity - As an ETF is really a derivative of an underlining asset. IE it’s a listed fund that “copies” eg the S&P 500. It is very important to choose the right provider. ETF are known for tracking error, eg (and stop me if im getting too technical) as a ETF is only an underlining instrument it tracks an actual instrument or underlining asset over long periods of time. Sometimes this tracking might be out by some percentage on the negative, this can be caused by a number of issues. The most important thing that you have to remember is that choose an ETF that is liquid and has a good market maker. Generally, the bigger firms have this pretty much covered. However, I would be hesitant at let’s say bio-engineering or biotech as an example as I would need to check the market makers before I buy. The underlining companies within biotech, for example, is very small compared to say a mining ETF. So I would keep this in mind
- Advice Driven
2.1) Risk - ETFs are a cheap way to spread your risks without consulting an independent financial advisor. I would stick to the basics and not try and purchase any fancy ETFs. S&P, NASDAQ, MSCI World index, these are all very good counters if you end up doing allot of your own stock picking. There are only 3 rules when it comes to risk, and trust me I have seen allot of people lose billions of dollars overnight…the 3 rules are:
2.2) Remember picking ETFs is a completely different approach. You are now doing asset allocation instead of stock picking. IE you choose your currency, location, sector etc. This might be, in the end, the best way for anyone starting to invest; as they don’t immediately start with single stock exposure.
My 2 cents, I hope that helped