Stock talk for the main street investor.

Investing In ETFs May Be Dangerous

Over the last two years the ETF market has grown incredibly fast and new products seem to emerge every week. You can invest in the Case-Schiller Housing Index, India stocks, bonds, etc. But there are products anyone who is not trading these securities regularly should stay away from.

Products offering multiples of the daily movement of an underlying like oil. The problem with this is over time they will all go to zero. It’s simple math that people fail to consider. If a stock oscillates from $10 to $11 ten times and you own a 2x multiple even though the underlying has not moved at all you will have lost 16.8% of your value.

Beware when investing in these products. Always read the prospectus of any ETF carefully before buying.

Disclosure: The Mayor does not have a position in any ETFs.

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