Is it Now the Right Time to Invest in ETFs?

There is no specific best time to invest in exchange-traded funds or ETFs. They are considered long-term investments, but they would enable you to own a diverse set of securities at an affordable cost. However, if you are asking that question now, then maybe the timing is right. Perhaps, the best advice is to start right now, so manage your exposure through dollar-cost averaging. By dividing the total amount that you will invest across different instruments, you can reduce the losses and the potential impact of the volatility. 

With the world still struggling with the global coronavirus pandemic, people might hesitate to put in their money on ETFS. Or, for those who already own shares, they might be tempted to unload their ownership because of market volatility. While ETFs do make an allowance for short-term trading, do not lose sight of your long-term investment goals by timing the market. 

Weakened Greenback: Opportunities and Risks 

The US dollar is weakening, and that opens up a slew of opportunities for ETF traders. But it could also have a severe impact on gold and currency. For example, gold earnings are typically inversely proportional to the greenback. The yellow metal is at an all-time high right now since as far back as 2015. 

When it comes to the currency ETF, the EUO or UltraShort Euro ETF and UUP | B-73 or the PowerShares DB US Dollar Index Bullish Fund are on the downward trajectory, which can only be expected.

But if you are investing in ETFS, steer clear from currency-hedged ETFs for now as the greenback continues to slide. Most investors are gravitating toward the vanilla international ETFs instead.

The falling dollar will make the following assets more attractive:

  • S&P 500 — If you are looking to invest in ETFs, a safe bet right now would be the S&P 500 ETFs, which provides you access to the US market. There are several instruments to choose from, so it would be a good idea to work with a broker or management team that can give you the best advice. The safe choices would be the Vanguard S&P 500 ETF, iShares Core S&P 500 ETF, or  SPDR S&P 500 ETF Trust.
  • Foreign stocks — Foreign stock ETFs would be worth another look when the US dollar is weakening. When the dollar was strong, foreign stocks were barely treading water, but now they are performing about 18% better compared to 2.0% before. Among the strong performers include the Vanguard FTSE Global All Cap ex Canada Index ETF and iShares Core MSCI EAFE IMI Index ETF. 
  • Emerging markets — Historically, emerging markets are performing well when the dollar is down. On average, they are up 22% compared to less than 3% when the greenback is strong. You can look at iShares Core MSCI Emerging Markets ETF, Vanguard FTSE Emerging Markets ETF, and Schwab Emerging Markets Equity ETF. 

There are multiple reasons why the dollar is weak right now, but the cause is less important as the results. So, going back to the principal question. While there is no specific time to invest on ETFS, the weakening dollar does open some opportunities for you to make good on your investment. But the crucial thing is to invest now, especially if you are still young since you can better absorb the losses, financially speaking.