Some exchange traded funds may not offer as much diversification as you think.
Take an ETF that tracks the S&P 500 for example. Over 10% of the market cap is made up of the biggest technology stocks such as Apple (AAPL) - Get Apple Inc. (AAPL) Report , Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report , Alphabet (GOOGL) - Get Alphabet Inc. Class A Report and Facebook (FB) - Get Facebook, Inc. Class A Report .
"I think not enough people spend time to go to the website, look at what that ETF actually holds," said Peter Tchir of TheStreet'sIncome Seeker. "There is often a discrepancy between what it says it does and what it actually holds. So one, I want to look for something that's truly diversified where it's not two or three names have 25% of it because you're not getting what you want."
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Editors' pick: Originally published Nov. 3.