ETFs have been publicized recently as the popular, new asset class to trade, but many people have no idea what they are. Before you jump in the deep end of the pool, here’s some basic info to get started with exchange-traded funds.
What are ETFs?
Definition: Exchange-Traded Funds, or ETFs, are similar to mutual funds in that they offer exposure to a group of assets. However, they are traded on an exchange like stocks.
Benefits: Purchasing a share of an ETF is similar to purchasing a very small piece of every asset that ETF holds. ETFs allow you to somewhat diversify your portfolio, without managing a large account.
Downside: Since an ETF is managed, all earnings will have a fee deducted before they reach you. And remember, ETFs aren’t magic! Just because they add some diversity to your portfolio, it doesn’t mean that you can things will go well. Investing is risky business, and you always be aware of the market when your money is at risk.
Fees: ETFs are usually subject to the same commission-fees as stocks. However, some brokers offer a select group of ETFs commission-free.