Use ETFs to cut the risk of aggressive stocks

Article Excerpt

Apart from lower fees, ETFs offer a simple way for investors to participate in major trends without having to pinpoint the individual company, or companies, destined to dominate—whether that’s five, 10 or 15 years from now. Take for example investors looking at companies focused on the needs of today’s aging population. Those investors could try to identify the pharmaceutical firm most likely to come up with the next disease-curing super drug, but high costs, slow development times and low success rates make that a risky bet. Consider Gilead Sciences (Nasdaq symbol GILD): Investors who correctly guessed its 2012 acquisition of Pharmasset would eventually lead to a cure for hepatitis C saw a 400% gain over just a three-year period. However, the chances of guessing right are slim, and by the time most investors realized the enormous profitability of the company’s Hep C drugs, the stock had already shot up. By providing broad exposure to an investment trend, or group of companies, ETFs can sharply…