Everyone’s Buying ETFs: Here’s What Retirement Savers Should Watch Out For

Exchange-traded funds (ETFs) have become popular with investing. One fund can hold hundreds of stocks at a fraction of the cost of a traditional mutual fund, which could help explain why U.S.-listed ETFs held about $14.21 trillion in assets as of early 2026, according to the Investment Company Institute.

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But not all ETFs may be worthy of a spot in your retirement account. The wrong pick can mean paying more in fees than you realize, dealing with volatility tied to a single industry or watching returns erode from a fund built for day traders.

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Two funds can track the same index and still cost you very differently.

For example, the Vanguard S&P 500 ETF (VOO) charges an expense ratio of 0.03%, while the SPDR S&P 500 ETF Trust (SPY) charges 0.0945%.

“Investors should look beyond the index itself and consider other factors such as fees, liquidity, and how they plan to use the ETF,” said Mingyuan Kong, an assistant professor at the New York Institute of Technology’s School of Management. “Over long retirement horizons, the small fees can compound into significant differences for investors.”

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These types of ETFs are built for short-term trading, not a 401(k). Leveraged ETFs amplify daily returns and reset each day, meaning long-term results can look nothing like the index they track.

“The two types of ETFs I would advise investors to exercise caution with are leveraged ETFs and ETFs that utilize futures contracts,” said Zachary Mineur, chief investment officer at Independence Square Advisors. “Holding them for longer periods can erode the return relative to the underlying asset or index.”

Funds tied to artificial intelligence (AI), clean energy and other trending sectors have multiplied in recent years. But they can often concentrate investors’ holdings in a single industry.

“A catchy theme or a rock-bottom fee isn’t a strategy,” said Jack Fu, CEO of Draco Evolution, which manages an AI-driven ETF. “Everyday investors should look for transparency in how decisions are made, not just how low the expense ratio is.”

Editor’s note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.