Investors pour billions into ETFs — but their retirement returns are being eroded by these 3 mistakes

Exchange-traded funds (ETFs) have soared in popularity in recent years. And the funds are adding up. In the first six months of 2025, ETFs collected US$540 billion in new money, according to Morningstar (1).

As investors pour money into ETFs, more are coming to market. In the first half of 2025, 464 new ETFs were brought to market. But not all ETFs are the same. Some of the most recent additions to the landscape include crypto ETFs, money-market ETFs and a public-private credit ETF.

Even many investors and prospective investors who don’t have ETFs in their portfolio see the allure of ETFs, with 45% of non-ETF investors saying they’re likely to consider purchasing an ETF in the next two years (2).

Although low-cost ETFs have become a favourite for investors seeking simplicity and diversification, many investors inaccurately assume that ETFs represent a completely safe bet. But that’s not the case.

A few basic errors could completely derail a portfolio that leans heavily on ETFs and throw off your retirement trajectory. Are you making any of these seemingly harmless mistakes?

The convenience of an ETF is a double-edged sword. It’s tempting to toss your money in after a cursory glance, but it’s important to dig into all of the details before you commit your hard-earned dollars to an ETF.

Some ETFs track broad indexes, such as the Vanguard S&P 500 ETF (NYSE:VOO), which tracks the S&P 500, but not all do. Some ETFs track specific sectors or industries, or a particular investment theme (like digital disruption), either of which may be too narrow or unaligned with your investment goals. For example, Fidelity’s Ethereum Fund (TSX:FETH.TO) tracks the cryptocurrency ether’s value. Unfortunately, a narrow focus can lead to a more volatile ETF.

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Another mistake investors make with ETFs is thinking that past performance guarantees future results.

For example, ARK Innovation ETF (CBOE:ARKK), a thematic ETF, saw prices soar in 2019, making it a popular ETF for investors in 2020. But by 2022, prices had fallen off a cliff, presumably leaving many investors with losses (3). This highlights the reality that you can still lose money through an ETF investment, and chasing past performance doesn’t always pay off.

A final mistake that ETF investors, and investors at large, are prone to is overtrading.

It’s easy to trade ETFs, but too much trading can end up hurting your portfolio in the long run. A recent study from the University of British Columbia’s Sauder School of Business documented the fact that active traders who attempt to time the market are more likely to end up losing money when compared to investors who resist the urge to overtrade (4).

When it comes to building an investment portfolio that grows your wealth over time, ETFs can play an important role. But it’s critical to appropriately manage these funds to avoid hurting your retirement nest egg.

As you navigate your investment portfolio, avoid making hasty decisions, even when it comes to ETFs. Before adding an ETF to your portfolio, spend some time delving into the fine print. Make sure that the underlying assets align with your investment goals and the management fees don’t put too much of a drag on your growth potential.

When adding ETFs, focus on building a diverse portfolio. While that may involve adding some relatively narrow ETFs into the larger pool of your portfolio, it could also mean seeking out diverse ETFs to limit the number of funds you’ll need to keep track of. You’ll need to find ETFs or other investment vehicles that strike the right balance of risk and reward. But only you can decide what the right balance is for your situation.

After you’ve committed to particular ETFs, resist the urge to overtrade. It’s tempting to constantly tinker with your portfolio. But the data shows that trading too often leads to subpar investment returns. Instead, practice patience and let your portfolio keep pace with the market.

If you can’t resist the urge to trade, consider setting aside a particular part of your portfolio for trading and leaving the bulk of your retirement nest egg untouched.

— with files from Melanie Huddart

Morningstar (1, 3); ThinkAdvisor (2); University of British Columbia (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.