Can an ETF ever go negative?

But can a leveraged ETF go negative? No. If you own a leveraged ETF you can't lose more than your initial investment amount. You would never be liable for more than you invested; in a sense, the amount you could lose is capped.

Yes, leveraged ETFs can go negative in value.

Those funds can trade up to sharp premiums, and if you buy an ETF trading at a significant premium, you should expect to lose money when you sell. In general, ETFs do what they say they do and they do it well. But to say that there are no risks is to ignore reality.

When ETFs with dwindling assets no longer are profitable, the company may decide to close out the fund; generally speaking, ETFs tend to have low profit margins and therefore need several assets to make money. Sometimes, it just may not be worth it to keep it open.

Leveraged ETF prices tend to decay over time, and triple leverage will tend to decay at a faster rate than 2x leverage. As a result, they can tend toward zero.

In other words, you could potentially be liable for more than you invested because you bought the position on leverage. But can a leveraged ETF go negative? No. If you own a leveraged ETF you can't lose more than your initial investment amount.

Because of their wide array of holdings, ETFs provide the benefits of diversification, including lower risk and less volatility, which often makes a fund safer to own than an individual stock.

Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.

While it is true that investors take on added risk if they do not fully understand the nature of their investments or the typical price action that accompanies them, ETFs do not typically offer a greater degree of risk than similar index-based funds. There is nothing inherently risky with ETFs in general.

One isn't safer than the other. It all depends on what the fund owns. For example, an ETF invested in emerging markets would normally be considered riskier than one investing in developed markets, like the US. Or an index fund holding stocks might be considered riskier than one holding bonds.

As interest rates rise, the prices of existing bonds fall, which impacts the value of the ETFs holding these assets. Let's look at why bond ETFs drop in value and consider how you might avoid any negative effects on your portfolio.

It's important to understand what is meant by “decay” in the context of leveraged ETFs. When we say that a leveraged ETF decays, we mean that its returns can diverge significantly from what we might expect based on the performance of the underlying index.

Diversification. One ETF can give exposure to many stocks from a particular industry, investment category, country, or a broad market index. ETFs can also provide exposure to asset classes other than equities, including bonds, currencies, and commodities. Portfolio diversification reduces an investor's risk.

ETFs can be some of the best investments for beginners. They're relatively inexpensive, available through robo-advisors as well as traditional brokerages, and tend to be less risky than investing individual stocks.

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.

Compare the market price to the NAV to determine if the ETF is trading at a premium or discount to its NAV. If the market price is higher than the NAV, the ETF is trading at a premium. If the NAV is lower than the price, the ETF is trading at a discount.

Financial experts generally recommend that you save and invest 10% to 15% of your income for retirement each month. However, whether you need to invest more or less than that can depend on several factors, including: How old you are.

When an ETF liquidates, investors generally receive cash distributions equal to NAV, so even if you fall asleep at the wheel, you will receive the fair value of your shares—most of the time. It's worth noting, however, that there have been instances where the process wasn't smooth.

Vanguard is the king of low-cost investing, making it ideal for buy-and-hold investors and retirement savers. But beginner investors and active traders will find the broker falls short despite its $0 stock trading commission, due to the lack of a strong trading platform and accessible educational resources.

About Vanguard

Vanguard's mission is to "take a stand for all investors, to treat them fairly, and to give them the best chance for investment success."6 It prides itself on its stability, transparency, low costs, and risk management.

How long should I hold an ETF for? You can hold ETFs as long as you want. Allow compound interest to work for you over time. However, you should avoid selling ETFs when the market is down since you can miss out on the potential to gain money when the market recovers.

It's impossible to say whether mutual funds, by and large, are safer than ETFs, simply because there are so many different funds out there, and some are going to be “safer” than others. What can be said, with confidence, is that both ETFs and mutual funds involve risk for investors.

If an ETF still has large trading volumes, a price that isn't moving radically up and down with each new trade, and fairly small bid-ask spreads (see the next section), then the market price is likely a better indicator of portfolio's true value than the NAV, and it is safe to proceed with a trade.

Claims that the rise of ETFs is inflating market prices should be relegated to campfire story time, however, concerns around passive investing dislocating prices from fundamentals are rooted in reality, according to new academic research.

The top-performing ETF of 2023 is the Communication Services Select Sector SPDR Fund (XLC), with a year-to-date (YTD) return of 35.8%. Triple-digit YTD gains in major technology names, such as Meta and NVIDIA, helped generate the outperforming ETF returns.

The Vanguard S&P 500 ETF (VOO -0.17%) is one of the most popular investment options for index investors. And with good reason. Its low expense ratio and strong track record of tracking the index make it a great option for those simply looking to match the S&P 500.

If the market falls, a passively managed ETF will generally follow it down. You can find actively managed ETFs, in which fund managers actively buy and sell securities in the hope of beating an index benchmark (though most aren't able to do so consistently). But such funds aren't as common.