Are ETFs popular investment tools?
Team Veye | 23-Dec-2019
Exchange-traded funds (ETFs) are investment funds traded on the stock exchange. These are a popular option for investors looking to grow their money with both short and long-term time horizons. ETFs are traded just like ordinary shares on the exchange. This is different from traditional mutual funds, which only allow you to trade at the end of a business day.
Many ETFs track major indices like the S&P 500 or the Dow Jones Industrial Average, sector, etc. ETF can get exposure to an entire sector by trading just one share.
ETFs have many advantages like they are easy to trade. They are listed on the exchange and can be traded through a brokerage account. Another advantage is that by trading just one share, one can get exposure to an entire sector or market. Through ETFs, all corners of the market can now be accessed by any investor. One can even short sell the market when the market is going down.
As is commonly known that it is never a good idea to buy an investment without understanding the risks involved. And like all investments, ETFs also come with risks. Although it is generally believed that riskier investments lead to higher returns, and ETFs tend to follow that pattern. Diverse, broad market funds and funds focused on bonds tend to offer the lowest risk. Commodity, option, and narrower funds usually bring you more risk and volatility.
While buying an ETF one should ensure to consider its underlying assets as you are not buying shares of a company’s stock directly. Instead, your money goes into a fund that buys a collection of stocks on your behalf.
Management fees and operating expenses are also a consideration for choosing an ETF. In August 2018, Fidelity released two new ETFs that are 100% fee-free. These cutting-edge ETFs are a very new concept. Prior to that, competitive ETFs from companies like Vanguard, Fidelity, and Schwab led the competition with low fees sometimes under 0.1%. The most expensive ETF, according to Bloomberg, charges 9.2%. This must be compared to multiple ETFs. Many major brokerages now offer a selection of ETFs that investors can trade commission-free, and that gives them a cost advantage relative to individual stocks.
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