Can you lose money with an ETF?

Yes, you can. If the assets inside an ETF fall in price, the ETF's price can fall too, and you can make a loss.

Are ETFs less risky than individual stocks?

In many cases an ETF can be less risky than a single stock because it usually holds many assets. That is not always true, for example with a narrowly focused ETF, and any ETF can still fall sharply when the overall market drops.

Is an S&P 500 ETF risky?

Yes, it still carries risk. An S&P 500 ETF is exposed to the US market, to currency risk for investors in Vietnam, and to behavioral risk if you buy and sell on emotion.

Do ETFs guarantee returns?

No, ETFs do not guarantee returns and do not completely remove investment risk.

What is the biggest risk of investing in ETFs?

For many long-term investors, market risk and behavioral risk tend to matter most. An ETF can reduce the risk of picking the wrong stock, but it cannot protect you from a falling market or emotional decisions.

What should investors in Vietnam watch for when buying foreign ETFs?

Pay extra attention to currency risk, trading fees, taxes, platform rules, how assets are held in custody and whether you can access the product at all. These can affect your real result beyond the ETF's price movements.

Risks of investing in ETFs: 5 risks beginners should know

Key takeaways

ETFs carry real risk: they can help you diversify, but they are not a completely safe investment and do not guarantee returns.
Five main risks to know: market risk, concentration risk, currency risk, product risk and behavioral risk.
Diversification reduces some risks, not all: an ETF can lower the risk of relying on one company, but it cannot remove market risk, so it can still fall in value.
Check before you buy: know what the ETF holds, what it costs, how easily it trades, which currency it uses and why you are buying it.

Is an ETF a completely safe investment?

No. ETFs are often described as simple, low-cost and an easy way to diversify. That can be true in many cases, but an ETF is not a product that guarantees a return.

If you are not yet comfortable with the basics, it helps to review the core lesson, What is an ETF?, before going deeper into risk.

Key point: an ETF can reduce the risk that comes from owning a single stock, but it cannot remove market risk. If the whole market falls, your ETF can fall with it.

For example, an ETF that tracks the US stock market may hold hundreds of companies. Yet during a recession, a crisis or a period of heavy selling, the price of that ETF can still drop sharply.

Common ETF risks at a glance

Type of risk	What it means	Simple example	Ways to reduce it
Market risk	The ETF falls when the market or the assets it holds fall	An S&P 500 ETF falls when the US market weakens	Invest with a longer time horizon and avoid using money you need soon; this does not remove the risk
Concentration risk	The ETF is focused on one sector, country or theme	A technology ETF falls when tech stocks are sold off	Check what the ETF actually holds
Currency risk	USD/VND movements change your result once converted	A US ETF rises, but an unfavourable exchange rate shrinks the gain in VND	Understand the extra currency layer before you invest
Product risk	The ETF has high fees, low liquidity or tracks its index poorly	A small ETF has a wide gap between buying and selling prices	Look at fees, fund size, liquidity and the fund manager
Behavioral risk	The investor buys and sells on emotion	Buying out of FOMO, selling when the market falls	Make a plan before you invest

Market risk

For many ETFs, especially those that track a broad market, this is often the biggest risk. If the market or group of assets the ETF follows falls in price, the ETF usually falls too. For example:

An ETF tracking US stocks may fall when the US economy weakens.
A technology ETF may fall when tech stocks are sold off.
A bond ETF may come under pressure when interest rates rise.

Many beginners think ETFs are "safe" because they hold many assets. In reality, diversification reduces the risk tied to any single company, but it does not remove the market's ups and downs. A longer time horizon gives you more time to ride out a fall, but it does not guarantee that prices will recover by the time you need the money.

Concentration risk

Not every ETF is equally diversified. An ETF can hold many stocks and still be concentrated in one sector, one country or one investment theme.

A technology ETF, for example, might own dozens of companies. But if the whole tech sector is revalued or sold heavily, that ETF can still fall a long way.

So when you look at an ETF, do not stop at the number of holdings. Check where it is concentrated and how much weight its largest holdings carry.

It can also help to place ETF risk in the wider picture of stocks, indices, compounding and long-term investing that the Investing Basics lessons cover.

Currency risk for investors in Vietnam

For investors in Vietnam, foreign ETFs usually add another layer of risk: the exchange rate.

If you invest in an ETF priced in USD, your result does not depend only on the ETF's price. When you convert back to VND, movements in USD/VND can make your actual result differ from what you expected. A simple example:

The ETF rises in USD.
But the exchange rate moves against you when you convert back to VND.
The gain you actually receive may be smaller than you thought.

The exchange rate can sometimes work in your favor too. The point is that you are taking on two risks at once: the risk of the investment itself and the risk of the foreign currency.

If you are looking into US ETFs from Vietnam, Investing in US stocks from Vietnam explains more about fees, exchange rates, taxes, custody of assets and platform risk.

Product and fund manager risk

An ETF is a financial product run by a fund management company. So besides understanding the market, you also need to understand the ETF itself.

For background on how ETFs are structured, you can read the ETF explainer from State Street Global Advisors. Treat it as an educational reference on ETF structure, not a recommendation of any particular fund.

Some things worth checking:

Which index or group of assets the ETF tracks.
How much the management fee is.
Whether the fund is large enough.
Whether the ETF trades easily (its liquidity).
Whether the gap between the buying and selling price (the bid-ask spread) is wide.
Who manages the fund.

A small ETF that few people trade, or one with a wide bid-ask spread, can make your real cost of investing higher than you expect.

If an ETF tracks an index such as the S&P 500, you should also understand what that index is, how it is built and which method the ETF uses to track it.

Behavioral risk

Not every loss comes from the ETF itself. Many losses come from how investors use ETFs, for example:

Buying an ETF because it is trending while the market is euphoric.
Selling in a panic when the market falls.
Switching ETFs constantly because a new theme sounds more exciting.
Investing in an ETF without understanding what it holds.

Even a well-built ETF can turn into a poor investment for you if you buy at a bad moment, use money you need soon or have no clear plan.

ETF myths vs. reality

"ETFs are always safe because they are diversified."

False. Diversification reduces concentration risk, but it does not remove market risk.

"An S&P 500 ETF can't lose money."

False. An ETF that tracks the S&P 500 can still fall sharply when the US market drops.

"Foreign ETFs are always better than domestic ones."

Not necessarily. It depends on your goals, costs, exchange rates, access and how well you understand the product.

"Once you buy an ETF, you don't need to keep an eye on it."

False. You do not need to check it every day, but you should still understand what the ETF invests in and whether it still fits your goals.

Which risks can an ETF help reduce?

An ETF can help reduce:

The risk of a single company going bankrupt or performing badly.
The risk of picking the wrong individual stock.
The risk of a portfolio that is too small and not diversified enough.
The risk of depending too heavily on one investment decision.

But an ETF cannot remove:

Market risk.
Currency risk.
Product risk.
Your own behavioral risk.

In other words, an ETF is a tool for managing risk, not a tool for eliminating it.

Checklist before investing in an ETF

Before investing in an ETF, ask yourself:

Do I understand which assets this ETF invests in?
Am I prepared for the ETF to fall sharply in the short term?
Is this money I will not need soon?
Do I understand the fees, liquidity and fund manager?
If the ETF trades in a foreign currency, do I understand the currency risk?
Am I investing according to a plan, rather than because many people are talking about this ETF?

If you answer "no" to several of these questions, it may be worth learning more before you invest.

Next step

ETFs spread some risks across many holdings, but they can still be hit by market swings, sector concentration, currency moves or tracking that drifts from the index. That raises a natural question: if one ETF cannot remove every risk, how should you think about spreading risk across your whole portfolio? The next lesson on the main path explains diversification and what it can and cannot protect you from.

Continue the main path: What is diversification?

Back to the core lesson: What is an ETF?

This content is for personal finance education only and does not constitute personalized investment advice. Consider your own goals, time horizon, ability to bear losses, and financial circumstances before investing.