The 3 biggest ETF investing mistakes I made as a beginner and how I avoid them
- Ben Tan
- Apr 14
- 5 min read
Investing in ETFs has become increasingly popular, and for good reason. Exchange-traded funds offer diversification, simplicity, and access to a wide range of markets and sectors. For many investors, ETFs are one of the easiest ways to start building a portfolio.
But while ETFs can be simple to buy, that does not mean they are always simple to understand.
When I first started investing in ETFs, I made a few mistakes that could have been avoided with more research and a clearer investment framework. These mistakes did not just affect my confidence. They also had the potential to hurt my long-term returns.
In this article, I want to share the three biggest ETF investing mistakes I made and how you can avoid them.
Mistake 1: Ignoring ETF costs
One of the biggest mistakes I made when investing in ETFs was ignoring costs.
Many beginners assume ETF fees are too small to matter. But over time, costs can quietly eat into your returns. Just as compounding can help grow your money, high fees can work against you and reduce your portfolio’s long-term performance.
The two costs you should never ignore are:
1. Expense ratio
This is the annual fee charged by the ETF provider to manage the fund.
2. Brokerage fees
These are the fees you pay when buying or selling an ETF through your brokerage platform.
At first glance, these costs may seem minor. But over many years, they can have a meaningful impact on your investment returns.
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How to avoid this ETF mistake
First, always check the expense ratio before investing in any ETF. For a passively managed ETF, an expense ratio above 1% is generally not attractive. That said, more specialised or complex ETFs may carry higher fees, so context matters.
Second, compare expense ratios only among ETFs that provide similar exposure. For example, comparing the fees of an S&P 500 ETF with a global ETF is not a fair comparison because they track different markets and serve different purposes.
Third, review your brokerage fees carefully. Many brokerages now offer low-cost or even zero-commission trading, so it pays to compare platforms and choose one that fits your investing style.
If you want to build wealth efficiently, keeping ETF investing costs low is one of the simplest and most powerful things you can do.
Mistake 2: Buying an ETF based on its name
Another mistake I made was investing in ETFs based on their name alone without studying what they actually held.
This is a very common beginner mistake. A fund name may sound clear and straightforward, but ETF names can be misleading if you do not understand the index methodology behind them.
As the saying goes, never judge a book by its cover. The same applies to ETFs.
For example, many ETFs include the words “Emerging Markets” in their name. But that does not mean every emerging markets ETF holds the same countries in the same proportions.
Take the Vanguard FTSE Emerging Markets ETF and the iShares Core MSCI Emerging Markets ETF. Both funds appear similar based on their names. But if you look deeper, their geographic allocations can differ significantly.
For instance, the iShares Core MSCI Emerging Markets ETF includes an allocation to South Korea, which the fund provider classifies as an emerging market. The Vanguard FTSE Emerging Markets ETF does not treat South Korea the same way.
That may sound like a small detail, but it can materially change your exposure.
How to avoid this ETF mistake
Never invest in an ETF just because the name sounds right.
Instead, study the following:
The ETF’s top holdings
Its geographic exposure
Its sector allocation
The index it tracks
The fund manager’s methodology
Do not just skim through the holdings page. Spend time understanding the top 10 to 15 positions and ask yourself whether the ETF actually gives you the exposure you want.
A good ETF investor does not just know the fund name. A good ETF investor knows what the fund owns and why it owns it.
As Peter Lynch once said, “Know what you own and know why you own it.”
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Mistake 3: Overlooking ETF overlap
The third mistake I made was owning multiple ETFs that gave me very similar exposure.
This is known as ETF overlap.
ETF overlap happens when you hold different ETFs that own many of the same stocks. On the surface, it may feel like you are diversifying because you own multiple funds. But in reality, you may simply be doubling up on the same underlying companies.
For example, buying both SPY and VOO gives you nearly identical exposure because both track the S&P 500.
This creates a few problems.
First, it can make your portfolio more complicated than it needs to be.
Second, it can increase concentration without you realising it.
Third, during market downturns, holding multiple ETFs with similar exposures will not protect you. In fact, it can make your losses feel even more painful because your “diversified” portfolio may not be as diversified as you thought.
How to avoid ETF overlap
One simple way to check for overlap is to use a free tool like the ETF Research Center Fund Overlap Tool. It shows how much two ETFs overlap by comparing their holdings.
But beyond common holdings, I think the more important factor is weightage.
In my view, if two ETFs overlap by more than 50%, that is already a meaningful amount. It suggests that the funds share significant exposure, and you should think carefully about whether you really need both in your portfolio.
Owning more ETFs does not always mean better diversification. Sometimes, it just means more duplication.
What these ETF investing mistakes taught me
Looking back, these three ETF mistakes taught me an important lesson: even simple investments deserve serious thought.
ETFs are often marketed as easy, low-maintenance products, and many of them are. But that does not mean investors should skip the research process.
Before you buy an ETF, ask yourself:
What does this ETF actually own?
How much does it cost?
Does it overlap with what I already have?
These questions may seem basic, but they can help you avoid costly mistakes and make better long-term investing decisions.
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Final thoughts on avoiding ETF investing mistakes
Investing in ETFs can be a great way to build a diversified portfolio and grow your wealth over time. But to invest well, you still need to understand what you are buying.
The three ETF investing mistakes I made were:
Ignoring ETF costs
Buying ETFs based on their name
Overlooking ETF overlap
By paying attention to expense ratios, understanding the underlying holdings, and checking for overlapping exposure, you can make smarter decisions and build a stronger portfolio.
The goal is not just to buy ETFs. The goal is to buy the right ETFs for your strategy.
What ETF mistake have you made before, or almost made, when building your portfolio?
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