Investing in ETFs offers investors broad diversification of mutual funds with the instant liquidity of stocks. ETFs or exchange traded funds are index funds that trade like stocks. Many people are choosing to invest in ETFs as either an alternative to traditional investing or as a supplement to diversify their portfolio.
While ETFs don’t yet number thousands of options like mutual funds, an equivalent ETF essentially exist for every type of index funds. So you have your choice of ETFs that track the indexes of stocks, commodities, real estate, specific sectors and industries.
How to Buy and Sell ETFs
ETFs are offered by traditional mutual fund companies and brokerage firms. ETFs each has a ticker symbol like stocks and can be bought or sold through a stockbroker or brokerage house at any time during a regular trading day.
ETFs Instead of Mutual Funds?
ETFs generally have low expense ratios and many are even lower than those of comparable index mutual funds. Whereas mutual funds can be sold at the end of each trading day ETF can be bought and sold throughout the trading day. ETFs often track indexes not offered by mutual funds. Still ETFs may not fix your investing need when compared to mutual funds.
Mutual funds in many cases do not have transaction fees. As with stops you’ll pay a commission each time you buy or sell in ETF. Mutual funds offer many more choices and ETFs when it comes to particular types of investments.
As with all investing models investing solely in ETFs, or investing solely in mutual funds will not give your portfolio diversification that is needed to balance risk and reward.
Perhaps at no time in history is diversification of your investment dollar more important than it is right now. If you are making money investing in markets right now, count yourselves as one of the fortunate few. However, investing in ETFs even for the beginning investor might be a good place to get your portfolio back in the black.