Investing in Exchange Traded Funds - ETFs
How To Invest in Exchange Traded Funds - ETFs
Exchange Traded Funds or ETFs are an alternative to other kinds of collective investment funds, such as Mutual Funds, Unit Trusts or Investment Trusts ETFs are a relatively new invention, especially in the UK, but in the USA there are many hundreds to choose between and the number of available funds is continuously increasing. ETFs are passively managed, either tracking an index or using some sort of screening algorithm to determine the undelying investments. They have the advantage that, as a consequence, they have far lower fees and total expense ratio (TER).
Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
Pros and Cons of ETFs
Exchange Traded Funds are similar to Mutual Funds or Unit Trusts except the price is quoted continuously through the trading day, like Investment Trusts rather than just once and there is no real manager, because they simply track an index (or other more complex screening algorithm) using computers, therefore have very low annual fee and small bid/offer spread. This makes them very good for short term trading.
The main disadvantage is you will have exposure to the whole index including badly performing companies or assets, whereas with a managed fund, if the manager is good, you may be able to avoid exposure to the badly performing assets (managers however do not have a good reputation for justifying their fees)
ETF Investment Books
How to Buy ETFs
What Can You Invest In?
ETFS can be used to gain exposure to:Stock indices such as the S&P, Dow, FTSEBond indices in many countriesCommodity Prices e.g. Gold, SilverHouse Prices
In addition to these index trackers there are also inverse index trackers and leveraged short and long trackers. These are more complex and far riskier.