Don't Fall for This Hot Stock Market Trend

Image Credit: CoffeeAndMilk/E+/GettyImages

If you're interested at all in investing, the starter pack of stock market advice probably looks like this: Diversify your holdings, and play for the long haul. Everything else is speculation, even if it's dressed up truly appealing ways.


Economists at Ohio State University have just published research on one way new investors (who tend to be millennials) are getting fleeced these days. It has to do with a totally normal and attractive kind of investment: exchange-traded funds, also called ETFs. They're often an excellent way to "buy low and sell high," but because they're also marketed to new investors, they can come with some drawbacks that may not be immediately apparent.

Video of the Day

In short, some brokers are bundling ETFs from a hot industry, like cannabis or cybersecurity, which seem worth getting in on early. But these specialized ETFs also tend to be at their highest price right as they debut, thanks to pre-launch hype. Because they're organized by a theme or an industry, especially a trendy one (think work-from-home companies), they're also not diverse enough to stabilize or grow consistently. Your exciting investment will likely underperform almost immediately.


Famous-for-being-a-famous-investor Warren Buffet says you really only need three personal qualities to be a good investor, and none of them have to do with being aggressive, flashy, or trend-seeking. Playing it safe is not actually as safe as it looks, but knowing exactly what you're getting into will help any investor of any experience level ride things out.