An Introduction To Exchange-Traded Funds (ETFs)

Exchange-Traded Funds, or ETFs as they are often referred to, are an investment device that pools together assets and purchases a variety of stocks in a single market sector. They have the flexibility of individual stocks in trading as they can be traded throughout the day on their major world stock market exchanges, similar to regular stocks. In fact, ETFs have their own ticker symbols like corporate stocks however they are diversified across a market segment or entire sector or industry to lower exposure and risk. This is an advantage to some investors who seek a more diversified portfolio than one that houses a stock investment in a single entity.

Exchanged Traded Funds hold dozens or even hundreds of investments under a single unified investment umbrella. Often times, they are structured to focus on a particular industry or market segment such as Pharmaceuticals or Manufacturing. In the fund, there will be a diverse of investments held across the spectrum to help stave off unnecessary exposure and to promote greater long-term results as a result of the diversification of funds. An ETF is an ideal blend of owning individual stocks and index investing while lower the costs associated with the management and overall expenses.

 For investors that are seeking to expand their investment portfolios to include oversees or offshore investments, the investment in foreign ETFs are ideal. Because the funds hold so many different investments and stocks, they are ideal for individuals that want to ride the wave of a well-performing industry and yet don’t want the risk associated with investing in just one entity or corporation. Unlike traditional Index Funds, Exchange Traded Funds offer the flexibility that most savvy investor’s desire; the ability to buy and sell at any given moment the market is open. Traditional funds on the other hand, can only be bought or sold at the closing price at the end of each day.

 

The financial benefits of an ETF are immense. It is only when investors actually sell the shares that capital gains taxes are applicable. Additionally, it is financially reasonable to enter the market of a boom sector for relatively low entry investments. Some ETFs have minimums less than $1,000. Additionally, ETFs typically have lower annual expenses than Index Mutual Funds. An Exchange Traded Fund expenses are normally in the range of 0.1% – 0.65% whereas Index Funds often charge anywhere from 0.1% to over 3% annually.

For investors seeking to gain interest into a booming and active sector of the market, an ETF can be an ideal solution. With their inherently diversified portfolio, they often times provide access to high-yield investment opportunities while not focused on a single entity or corporation for added security. Foreign ETFs are ideal for investors wanting to get into hot foreign market sectors and offer the same diversified protection as the domestic ones. Additionally, the added benefit of low annual costs and the flexibility of trading, It is easy to see why sophisticated investors the world over are choosing to invest in Exchange Traded Funds.

About the Author: When you are searching for information about retail investments and funding choices, you will find that there are a few choices that can really help to improve your portfolio performance. When you have questions about your investments, you might consider turning to Trustnet. Trustnet Hong Kong is a premier site for information about fund investment. Visit their website at www.trustnet.hk for more information.

 

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Updated: August 6, 2012 — 9:17 am

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