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Exchange-Traded Funds: Tips to Help Narrow Down Your Choices

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April 10, 2018
Shopping list: Looking for investment ETFs? Tips to help you research
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Looking for a more efficient way to diversify your portfolio? You may want to consider an exchange-traded fund (ETF). With an ETF, you have the opportunity to invest in a basket of securities that aligns with your goals, risk tolerance, and time horizon. And there are plenty to choose from—offering exposure to a wide variety of markets, sectors, and asset classes.

Here are some tips to help you zero in on the ETFs that may fit with your investment strategy. We'll also illustrate how you can put these tips into action by using TD Ameritrade's ETF Market Center as an example. It's a broad collection of 300+ commission-free ETF products and research tools available to TD Ameritrade clients. Of course, particular commission-free ETFs may not be appropriate investments for all investors, and there may be other ETFs or investment options available at TD Ameritrade that are more suitable.

Start with a Comprehensive List of Exchange-Traded Funds

First, find a list that allows you to view and filter available ETFs using a variety of search criteria. That may increase the likelihood you’ll find ETFs that are designed to meet your needs.

In figure 1, you’ll notice the ETF Market Center categorizes ETFs by market sector, investment style, commodities, global and emerging markets, and individual stock selection.

Finding ETFs to match investment goals

FIGURE 1: FILTER BY YOUR INVESTMENT GOALS.

Image source: tdameritrade.com. For illustrative purposes only.

Know Your Investment Style

Depending on where you’re at in your financial journey, you may want investments that generate income, offer the potential for growth, or some combination of the two. You can use your investment objectives and risk tolerance to help guide you toward ETFs that match your style. 

Identify the Stocks or Sectors You’re Interested In  

If you’re bullish on a particular sector (e.g., energy, technology, healthcare), you might filter the list of ETFs to find ones that focus on that industry (see figure 2). For example, selecting financial services from the ETF Market Center menu would pull up the available choices in this category.

Filter ETFs by sector

FIGURE 2: FILTER ETFS BY SECTOR.

Image source: tdameritrade.com. For illustrative purposes only.

Or perhaps, you may want to gain exposure to a certain stock without buying it outright. You could search by the stock’s ticker symbol to see which ETFs invest in it.

Decide If There are Other Securities You Want in Your Portfolio

ETFs focus on more than just U.S. stocks. Some invest in a wide range of commodities, including agriculture, energy, industrial, precious metals, and more. Others might focus on a specific region of the world. And still more may provide exposure to fixed-income securities. Searching by your investment preferences may help you quickly identify potential ETFs to consider.

Dig Deeper into the Details

Narrowing down the list of ETFs to a handful that meet your criteria is just the first step. You’ll want to review each fund to learn more about its investment approach, features, and performance before making a decision. Of course, past performance is no guarantee of future results.

Clicking on a specific ETF within the Market Center will pull up a collection of stats and tools, including a comprehensive summary, ratings and risk, portfolio holdings, and technical charts—all things that might help you better evaluate an ETF. (See figure 3.)

Analyze ETF details

FIGURE 3: ANALYZE THE ETF DETAILS.

Image source: tdameritrade.com. For illustrative purposes only.

There’s an ETF for That

Exchange-traded funds come in many different forms and can include a wide range of financial instruments. They can be narrowly focused, or highly diversified; customized to suit more conservative tastes, or designed to be more aggressive; limited to a single domestic sector, or open to a mix of global assets.

In addition to building your own ETF portfolio, you can also invest in these funds using a managed portfolio solution from TD Ameritrade Investment Management, LLC.* You might consider this option if you don't have the time or desire to select ETFs on your own. 

Whichever approach you choose, carefully consider each fund’s investment objectives, risks, charges, and expenses before investing. You can find most of this and other important information about the ETF in each fund's prospectus.

TD Ameritrade clients can call 800-669-3900 to obtain a prospectus. Read carefully before investing.

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