ETF 101: A Quick Look

Exchange Traded Funds can most accurately be described as the happy marriage of a stock with a mutual fund.

Like mutual funds, when an investor buys an ETF, he is buying a pool of securities at one time. For instance, an ETF known as DIA, or “Diamonds.” allows the investor to take a position in the Dow Jones Industrial Average.

Like a stock, an ETF can be purchased through a brokerage account, can be traded throughout the day, can be bought on margin and offers stock-like trading features such as limit orders, stop orders and short selling.

ETFs come in many different flavors. They track all the major indexes like the Dow, S&P 500, NASDAQ 100, Russell 2000 and others. They’re also available in a number of different sectors, many of which are hot at some point so it is your job to keep an eye out. Investors who want to trade sectors like energy, technology, precious metals, financial, health care, emerging markets, interest rates, real estate and many more have the ability to do this.

Introduced over 17 years ago, ETFs were initially mostly used by professional traders, but in recent years, have experienced rapid growth as a popular investment vehicle with public investors. Now everyone is trading them, including investors on all scales of the financial spectrum.

ETFs have gained such widespread acceptance and popularity because they provide significant advantages over mutual funds. The advantages of ETFs over mutual funds include:

• Continuous pricing throughout the day compared to end-of-day pricing for mutual funds
• Can be sold short like a stock, which isn’t possible with mutual funds
• Can be bought on margin
• Can use limit and stop orders so you can exit or enter during the trading day
• Have lower expenses than mutual funds and no management fees

Adding it all up, it’s easy to see why Exchange Traded Funds have been growing at a rate of nearly 50% per year since 1993. This is pretty rapid growth, and will continue at a rate close to this for the foreseeable future.

Conclusion

It’s easy to see why Exchange Traded Funds have steadily grown in popularity over the last seventeen years. By combining the benefits of a mutual fund with the benefits of a stock, they really do offer investors an optimum combination of flexibility and potential profit.

Of course, the large mutual fund companies don’t like ETFs but have had to adjust to their new popularity and so many fund families have introduced ETFs of their own in recent years.

For investors, ETFs offer considerable advantages of flexibility, cost and diversity, and therefore, this makes them a clear choice over mutual funds. Do some research and get yourself invested in ETFs today!

iShares has silver ETFs and gold ETFs which have been helping push the precious metals to all time highs. That and all the turmoil in the stock market and us economy.

They also have leading market and sector exchange traded funds that will allow you to choose a whole sector at once without the need to buy many many equities. This can be great and enable you to diversify easily without having to sink a lot of money in things like mutual funds. The biggest challenge you’ll have is choosing which sector is hot right now and which isn’t.

A quick note on choosing a sector. A lot of times, by the time you here of a hot sector. It’s too late, and you miss out on the run up. Getting into an ETF allows you have less exposure to that one company you would normally have to choose in that sector. This can make any losses after a sell off have less of an impact on your bottom line.

More on this later…

Much like mutual funds, choosing the right one can be difficult. But unlike mutual funds you don’t have to spend big money to buy them or buy them through an investment company. Exchange-traded funds can be bought on most stock market exchanges.

You can buy short fund that short a whole index or sector. You can buy international ETFs that focus on a specific country or ones that are widespread all over the world. Commodity ETFs, sector ETFs, and random ETFs. They’re all there.

ETF Hound is here to help you sift through all the choices and find the ETF that is right for you during the current market conditions. Unlike mutual funds, buying and holding exchage traded funds isn’t always the way to go. You can buy a fund easy like a stock so you should think about them that way.

Let ETF Hound help you choose the right one.