ETFs are exchange-traded funds. They let investors that buy a large amount of corporate and government bonds or individual stocks in one purchase. They are like investment rappers that hold bonds and stocks together.
How to Understand ETFs
ETFs typically have lower fees than other funds. They are trading easier as well. Investors need to understand that ETFs are not one size fits all investments. They have to be in that evaluate it individually, and their commission fees and management costs need to be a staff. Investors also need to consider how easily they can sell or buy them as well as the quality of the investments.
With ETFs, the owner of the fund, who provides the fund, owns the assets. This person tracks the performance of the funds and then sells the chairs to investors. The investors own a part of the ETF, but they do not own the assets. Investors would then get dividend payments.
The Difference between ETFs and Mutual Funds
ETFs are like mutual funds. Mutual funds allow investors to purchase a lot of stocks at the same time, too, but there are some differences between mutual funds and ETFs. Where mutual funds have human fund managers that manipulate the investments, ETFs are managed technically. ETFs use algorithms that track indexes like the US bond market or the S&P 500. ETFs are considered to be passively managed, whereas mutual funds are actively managed. Additionally, ETFs are sold and bought doing the whole trading day, unlike mutual funds that are priced only one time a day.
The Different Types of ETFs
There are many different types of ETFs on the market today. Some of the most popular categories are Stock Market Tracking ETFs and Sector Tracking ETFs. Stock market tracking ETFs are similar to indices like the bond or stock market that attract individual investors. Sector tracking ETFs focus on the part of the economy rather than its entirety. The 11 factors that financial giants S&P & MSCI developed organized companies into 11 major sectors. These sectors are called the Global Industry Classification Standards (GICS).
While ETFs may sound complicated, investors need to approach them like any other investments. That is, research them and find out how to invest in them. We can certainly help you navigate ETFs and how to structure your money in these types of funds. Contact us to find out how.
