Monthly Archives: August 2015

Investing In ETFs: Look At Liquidity

ETFs

I am always amazed how little investors know about the vital importance of liquidity and its direct co-relation to the risk they are taking on with an investment. In recent years ETFs have gained hugely in popularity. Granted, they have many benefits over trading individual stocks: You do not have to worry about dividends, as there are dividend oriented ETFs trading baskets of high dividend stocks. ETFs typically tend to be less volatile than most stocks, at least the frequently traded ones.

This is obviously due to the fact that you are trading a basket of individual shares rather then one individual stock. If you have an underperforming stock as part of the basket, and the remaining basket performs well, this will cushion you to some extend against news reaction spikes from an individual stock. News spikes are common with individual stocks and can alter the chart pattern of an individual stock in a matter of hours.

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