Ways to identify a bad ETF investment

The following four tips can help investors determine whether an ETF is likely to fail:

1. Use caution when selecting ETF products that track narrow market segments; these products are considered risky and therefore require more evaluation.

2. Examine the ETF's trading volume. Volume is a good indicator of liquidity and investors' interest. If the volume is high, the product is typically more liquid.

3. Look at the assets under management, to determine how much money is being managed and to measure the fund's success.

4. Review the ETF's prospectus, to understand what type you are holding. An ETF is like any other investment company and will deliver a prospectus upon request. The prospectus will provide information such as fees and expenses, investment objectives, investment strategies, risks, performance, pricing and other information.

5. Finally, very new or very small ETFs sometimes trade inefficiently, resulting in wide spreads between their buy and sell prices or failure to track their benchmarks accurately. Wait for an ETF to gather at least $100 million in assets before you invest in it.