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ETFs: loved but misunderstood

ETFs: loved but misunderstood

A lot of people love exchange traded funds, even if they don’t always understand them, according to a new survey by Charles Schwab.

The online survey last month of more than 1,000 investors who either own ETFs or are considering buying them found that 44 percent planned to increase their investment in the security in the next year. Thirty-one percent planned no change, and 21 percent didn’t know.

ETFs track indexes and can be traded like stocks, offering investors a relatively low-cost way to easily diversify portfolios and to follow trends in particular markets. Despite investors’ apparent enthusiasm for the product, a surprising percentage say they are unclear about how they work.

One out of four respondents in the poll said they “don’t know anything” about how to best use ETFs, compared to 16 percent who said they “know a lot.” Just 6 percent of respondents described themselves as experts in the product; among owners of ETFs, that share rises only to 8 percent. The full rundown on ETF awareness is in the Schwab chart below.

Schwab sees an opportunity here for its own suite of investor tools, according to Beth Flynn, vice president of ETF platform management. “Individual investors are attracted to the efficiency and flexibility of ETFs, but many do not have a solid grasp on how they work,” Flynn said in a company statement. “As more flavors of ETFs come to market, it is clear that the emphasis on education will be more important than ever.”


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