So What is an ETF anyways?
A Stock Market ETF (more commonly known as just ETF) is an Exchange Traded Fund which was created in 1990 and used by Institutional Investors to develop sophisticated trading strategies.
- An ETF is simply a basket of multiple stocks. They are similar to mutual funds, except cheaper (lower management fees)
- Many types of ETFs exist which focus on specific sectors, exchanges, countries, style, directions, and more.
- Examples are SPY (Tracks the S&P 500 Index), QQQ (Tracks the NASDAQ 100 Index), INDA (Tracks the Indian Stock Market), GLD (Tracks the Gold Index), SQQQ (Profits during a decline in the NASDAQ Index), you can invest in these and others over here.
ETFs work in the same way as mutual funds, as in that they are managed by a fund manager or group. Some consist of around 100 stocks in their portfolio, while others may contain around 500. ETFs are available to invest and trade publicly on the exchange.
Investing in these is as simple as opening up a brokerage account. Many brokerages even allow for fractional investing, meaning that if an ETF costs let’s say $100 per share. You don’t need a full $100 to invest, most times you can invest with a minimum of $10 and still get a piece of the share.
- ETFs are attractive because they offer diversification in the way of investing in multiple stocks. This can reduce an investor’s risk significantly, which is good of course.
- Investors who are starting out may be more attracted to ETFs who are on a budget and may not be able to afford the more well known stocks, but still want to invest in them.
- Some ETFs offer dividends, and are even dedicated to paying higher dividends.
ETFs are quite popular and there are more and more coming out. So it’s an investment vehicle that’s likely here to stay.
Comments
Post a Comment