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Tips on Investing in ETF's

Updated on August 6, 2010

What is an ETF, and what does it do?

I wanted to shed some light on ETF investments. As most of us anxious investors want to know what will give us the biggest and safest return possible. Well, ETF investing might just be your answer.

ETF investing is a type of investment fund that is based on the stock exchange similar to stocks. The acronym ETF stands for 'exchange-traded fund', and an ETF holds assets which may include stocks, bonds and other securities that can trade at roughly the same price to the net value of those underlying assets.

Inside an ETF investment

Normally the stocks or shares beneath the ETF will track a particular index. Or share some kind of common ground, such as product field, region, or service sector. So if the ETF is following Brazil, Russia, India and China, The ETF itself will include stocks, bonds, other securities that are in investing in those particular countries or are from those particular countries.

The majority of ETFs are a low cost, tax efficient alternatives to stocks. ETF investing is particularly useful for smaller investors as it allows them to have immediate diversification.

The diversification will help keep the investor safe from sector or region specific volitily. This is why people often say, don't put all your eggs in 'one basket'. The only downside of this tactic is you may also cut your gains short, when particular markets are bullish. But its 'better to be safe then sorry' says the wise man. 

ETF investments are growing in popularity !

ETFs are just now growing in popularity. Hugely due to the increase in interest for the stock market and the Foriegn Currency exchange. Since the internet has allowed people to trade from the comfort of their own home. Many have realized they don't have to be a 'Hotshot' wallstreet broker to utilize ETF's or other investment vehicles. What was once an investment, only used by the wealthy, is now being used in even some of the smallest poorest parts of the world.

A big benefit of ETF investments, are that they can typically outperform mutual funds. The current total for all ETF traded assets now exceeds over 1 trillion US dollars.

Twice the risk, twice the REWARD !

One very popular innovation in ETF investing would be the leveraged ETF. Leveraged ETF is designed in order to make twice or three times the return of the underlying index on a daily basis. This obviously means higher risk investing, but with all investments, 'bigger the risk, bigger the reward'. Currently 2x and 3x leveraged ETF is the most popular traded ETF's on the market.

ETF Investment Brokers

Most online brokerages, like eTrade, Scottrade, Zecco..etc now incorporate ETF scanners to allow the ETF's to be looked up by industry sector or region, or alternatively by value or strategy (e.g. growth, income or speculation).

These brokerages also will allow you to search for leveraged ETF and 2-3 times leveraged ETF's

For a small budget or a novice trader, ETF's are a great way to start investing. Its always important to be safe and only risk funds that you can afford to lose. You shouldn't have to worry about that, if you properly diversify. Which ETF's easily and effortlessly allow you to do. While also enjoying the low expense ratios and tax benefits. Good Luck !

Comments

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    • fibo777 profile image

      fibo777 

      7 years ago from UK

      Although I am not interested in ETF's the information in the hub is useful. Thanks for sharing. Good luck in investing.

    • Midasfx profile imageAUTHOR

      Midasfx 

      7 years ago

      I don't think pension funds should be allowed to invest in ETF's. I personally think that these kinds of investments are for investors who can afford to lose all of their capital and not skip a beat.

      For a pension fund, people will need that money. So moderate to moderately high risk investments should be avoided. People have pension funds to slowly increase their money over time and to have something later on down the road. They are not looking to get super rich from it.

      That's just my opinion though. Thanks for commenting on this hub, I'm glad you liked it!

    • GmaGoldie profile image

      Kelly Kline Burnett 

      7 years ago from Madison, Wisconsin

      When I sat on an advisory board we wanted to ban EFTs. You phrased it nicely - twice the risk and the twice the reward. Should our pension funds be allowed to invest in this?

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