ETF mistakes that can ‘quietly erode long-term returns’: advisor
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Demand for exchange-traded funds is increasing as investors turn to lower-cost, tax-friendly, easier-to-buy and sell options. But many people Financial experts say they don’t know what they’re buying, and mistakes can hurt their returns.
in the ETF market exceeded 11 trillion dollarsIt reached a near-record high of $511 billion in inflows in the first half of 2025, according to a report this week from Cerulli Associates, a financial services research firm.
However, “We’re seeing some common mistakes that can quietly erode long-term returns,” said certified financial planner Jay Spector, co-chief executive officer of EverVest Financial in Scottsdale, Arizona.
Investors may soon see more ETFs following regulatory decisions from the U.S. Securities and Exchange Commission in late September. Either decision could trigger a wave of new ETF share classes in mutual funds.
As the ETF market grows and more products emerge, it’s important to understand how each asset can impact your financial goals, advisors say.
In the meantime, here are some key ETF mistakes to avoid.
Following the ‘herd mentality’
According to Spector, one of the ETF’s biggest missteps is “chasing performance”; This often involves the “herd mentality” of following other investors by pouring money into growing assets.
In some cases, clients buy ETFs when they are performing well, without considering how well the investment aligns with their long-term financial goals.
Chasing hot themes and ‘trending hopping’
Another common mistake is to follow the masses into hot ETF themes or “trend hops,” said Patrick Huey, CFP, owner of Victory Independent Planning in Portland, Oregon.
“The latest AI, crypto or “Thematic ETF after big headlines,” he said, “but these funds are often narrowly focused and volatile.”
If you buy when the ETF is at its peak and sell when it’s falling, “you’re missing out on the true benefit of stable, diversified exposure,” Huey said.
Ignoring ETF expense ratios
Another big mistake is thinking that all ETF costs are the same, according to William Shafransky, CFP, senior wealth advisor at Moneco Advisors in New York.
“I see this all the time in new client portfolios,” and many investors may own the same index, such as the S&P 500, with a lower expense ratio, he said.
Broad market index ETFs that track the S&P 500 generally expense ratio below 0.05%As Morningstar reported in July. But some funds charge more.
” [higher] The cost may seem insignificant at first, but the extra fee increase on your return adds up over time and can result in lost money,” Shafransky said.
