Posted by forex at 2:56 AM
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1. SELECTIONFirst of all, you need to select the ETF or ETF's you want to buy or compare. This is obviously a key step. Here you can read the fund' s strategy, the family of funds it belongs to and how it compares with other funds.
2. EXPENSE RATIOETF's do charge a tiny commission for the fund' s services, so be sure to compare the expense ratio of funds using the very same strategy. If the strategies are different, then the comparison will not be as useful, since you would be comparing two quite different "products".
3.
VALUATIONThere are three approaches you can take to value an ETF.Net Asset Value per share - This is the Net Asset Value of the fund divided among all the outstanding shares. If the market values the ETF at a higher price than the Net Asset Value, then it is said to be trading at a "premium". If the market price is under the fund' s net asset value, then it is trading at a "discount".Keep in mind that the date and time the assets where measured and the current market prices for those assets might vary. This is why it is very important to use very recent figures or at least take price into consideration.
4. Dividend - Some ETF's have dividends, so you can decide to choose between two similar ETF's based on which one pays you a higher dividend. Also, sometimes dividends are high enough so that the dividends alone could provide a good return regardless of where the market price of the ETF goes. Dividend safety is key when you make decisions based of dividend yield. In the resources section I placed a link on how to determine a dividend's safety.
5. Individual holdings valuation - You can always evaluate each of the fund' s holdings and see if you think the market is over-valuing or undervaluing each individual stock. You should start with the holdings that occupy the largest percentage of the fund' s allocation and go from there.