Joel Dickson, Vanguard’s global head of Investment Research and Development, helped answer that question along with a panel of other industry experts at this year’s Inside ETFs conference.
No matter how many products the industry comes up with, a crucial part of the ETF story will continue to be educating investors, Dickson said. That’s because ETF benefits, such as transparency and ease of trading, can be offset by uninformed trading practices, he said.
“You need to know the difference between a limit order and a market order,” Dickson said. “Trade when the market is open,” as opposed to doing so over the weekend, he said. Otherwise, “that’s a huge amount of risk.” (Overnight trades can contribute to extreme volatility in a security once the market opens. See the Vanguard guide ‘Best practices’ for ETF trading: Seven rules of the road.)
Dickson said it’s also important to think of ETFs not as stand-alone products, but rather as pieces of an integrated and well-thought-out plan.
All investments are subject to risks, including the possible loss of the money you invest.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.