What Is An Exchange Traded Fund
An exchange traded fund is a fund that holds multiple underlying assets, rather than only one like a stock does. The fact that there are multiple assets within an ETF can be a popular choice for diversification.
An exchange-traded fund (ETF) can represent a basket of securities that trade on an exchange just like a stock does. ETF share prices can fluctuate all day as they are bought and sold, unlike the mutual funds that only trade once a day after the market closes.
ETFs can contain all types of investments, including stocks, commodities, or bonds; some offer U.S.-only holdings, while others are international.
ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually. ETFs can be designed to track from individual commodities to large and different securities. It can also be structured to track specific investments.
Types of ETFs
Depending on the choice of funds and the risk involved, one can choose from the following:
1. Equity Funds: With the abundance of choices out there, it’s essential that you first determine your portfolio’s equity allocation and then, based on those decisions, select ETFs to meet your investment goals.
2. Fixed-Income Funds: These apply to those on a fixed income alone.
3. Commodity Funds: These will help track the commodity one consumes for whatever duration.
4. Currency Funds: It is important to remember that currency investing should represent a small portion of your overall investment strategy and is meant to soften the blow of currency volatility.
5. Real Estate Funds: These funds are an excellent source of income, especially when short-term interest rates and inflation are near historic lows.
6. Specialty Funds: It can be in the form of pensions, contracts; specific organizations make use of this.
A certain individual met an investment adviser as a beginner who introduced him to ETFs and discussed the risks, cost, and how they hold a basket of stocks or other securities with increasing diversification. His investments were guided along those lines and yielded several positives in the long run.« Back to Glossary Index