ETF's are becoming very popular in the investment world but to an every day individual just trying to decide what to do with their savings they may be confused. Here are some quick tips for what they are:
What does ETF stand for?
Exchange Traded Fund
What is an ETF?
An ETF is traded on the stock market unlike a mutual fund. What is a mutual fund? Remember when you signed up for a 401K at work? You most likely invested it in a bunch of mutual funds that track things like the S&P 500 (stocks of big companies) or Government Bonds.
How are ETFs Priced?
Just like a stock their price changes based on supply and demand. Their prices are reflected on the stock exchange on which they are sold. As well, they do not have fees like Mutual Funds. You usually pay a commission fee when you buy either but there is not upfront fee and therefore they are cheaper!
Why should I Invest in these?
First, as mentioned above they are cheaper than other options. As well, it is a passive strategy. What this means is you invest in them and then just wait. They will go up and down in value based on what they are invested in, however it is unlike buying and selling a specific stock. There are people managing these ETFs and helping them to be successful. Their success does not depend on one company and therefore it is less risky.
How do I get started?
You have to buy an ETF through a broker. There are many different companies you can try and most allow you to sign up for an account online. A good way to start getting exposure to ETFs is the app STASH. See last week's post for more information on this!