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The risks noted by the NYSE are two fold. First as my post The ETF trap 2 points out, fees are a big concern. Unlike mutual funds that can be purchased without commission (if done properly) ETFs must be bought through a broker triggering a commission even if it's relatively small.
"While the annual expense ratios can be low, investors pay trading commissions each time they trade an ETF, which can drive up investment costs over time" the article says. It continues, "For investors who plan to make smaller investments on a regular basis (instead of making one large purchase), investing in a commission-free mutual fund might be less expensive, according to the NYSE publication."
And much as I pointed out in the original post, The ETF Trap, the commoditization of ETFs (ETFs tracking increasingly narrow niche markets) is dangerous.
"The proliferation of ETFs tracking narrow segments, such as commodities, also can lead to higher costs for investors. These ETFs typically are more volatile, and investors may be tempted to chase performance, which can rack up transaction and tax costs, says Dan Culloton, a senior fund analyst at Morningstar."
This brings me to a promo for my next article. With the introduction of Roth 401(k)s I can't help but wonder if the reason people aren't saving enough for retirement, isn't because it's so complicated. As each of these new "tools" are introduced from ETFs to annuities to the Roth 401(k), the average investor falls deeper into the hole. Stay tuned.