Learning about Exchange Traded Funds Can Make Financial Dreams a Reality?

Answer 1

Learning about what an Exchange Traded Fund, or ETF, is can be important to any investor. An ETF is essentially a hybrid of a stock and a mutual fund. Like a stock, an ETF is traded on the market. Like a mutual fund, the ETF tracks the valuation of a commodity, index or collection of assets. Financial advisors encourage individuals to invest in ETFs because they provide diversification with quite a bit of flexibility.

Anyone who has money to invest can purchase shares in an ETF through their broker. Investors who like to take an independent approach can research ETFs to decide which ones are appropriate for them. Alternatively, brokers can make recommendations on ETFs that have been, and are expected to continue, performing well. Much like other Stock Market investments, the investor must track the position frequently to determine the health of their portfolio.

ETFs are a relatively new investment tool. In 1993, there was just one ETF. Today, there are well more than 1,000 from which to choose. Investors can purchase ETF shares in which they invest in 32 countries, at least 16 different commodities, 14 international currencies and 30 segments of the bond market. Simply by investing in one or two ETFs, the novice investor can give themselves excellent diversification.

An ETF is generally a cheaper investment than a traditional mutual fund. A mutual fund is actively managed, while an ETF is passively managed. This means that the ETF does not have a fund manager who is proactively trying to make the ETF perform better. Instead, the ETF relies solely on the asset's performance in the market. Because a traditional mutual fund has an active manager, it typically has large annual fees. ETFs, on the other hand, can usually be traded with just a small, per transaction fee.

Exchange Traded Funds allow even novice investors to acquire some excellent portfolio diversification that offers them better financial protection than buying stock in a single asset. Buying ETF shares is easy and typically requires only a nominal fee. ETFs are a solid investment strategy for both short and long term financial goals.