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Demand for exchange-traded funds is soaring as investors shift to lower-cost, tax-friendly options that are easier to buy and sell. But many people don’t know what they are purchasing, and mistakes could hurt their returns, financial experts say.
The ETF market has surpassed $11 trillion, near a record high, with $511 billion of inflows during the first half of 2025, Cerulli Associates, a financial services research firm, reported this week.
However, “we are 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 could soon see even more ETFs after regulatory decisions from the U.S. Securities and Exchange Commission in late September. One of the rulings could spark a wave of new ETF share classes of mutual funds.
As the ETF market grows and more products emerge, it’s important to understand how each asset could impact your financial goals, advisors say.
In the meantime, here are some of the key ETF mistakes to avoid.
Following the ‘herd mentality’
One of the biggest ETF missteps is “chasing performance,” which often involves the “herd mentality” of following other investors by funneling money into rising assets, according to Spector.
In some cases, clients buy ETFs when they are performing well, without considering how the investment aligns with their long-term financial goals, he said.
Chasing hot themes and ‘trend hopping’
Another common mistake is following the masses to hot ETF themes or “trend hopping,” said CFP Patrick Huey, owner of Victory Independent Planning in Portland, Oregon.
“It’s tempting to jump into the newest 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 peaks and sell as it declines, “you’re missing the real benefit of steady, diversified exposure,” Huey said.
Ignoring ETF expense ratios
Another big error is thinking all ETF costs are the same, according to CFP William Shafransky, a senior wealth advisor with Moneco Advisors in New York.
“I see this all the time with new client portfolios,” and many investors could own the same index, such as the S&P 500, at a lower expense ratio, he said.
Broad market index ETFs that track the S&P 500 often have an expense ratio under 0.05%, Morningstar reported in July. But some funds charge more.
“The [higher] cost may seem insignificant at first, but that extra fee drag on your return adds up over time and could translate into lost money,” Shafransky said.
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