In this first of a three part series, Kevin Ellman, CFP® explains why we should know about Exchange Traded Funds or ETFs.
When we build client portfolios one of the investment tools we can use are Exchange Traded Funds or ETF’s. ETF’s can offer the individual investor the ability to buy large groups of stocks, bonds, currencies or commodities in one simple package. These funds have been around for about 10 years and are one of the fastest growing investment vehicles available today.
Historically, most ETF’s are index funds and are priced throughout the day like a stock. When the first ETF’s were created, there were only a few options available. The”Diamonds” were a fund consisting of all 30 Dow Jones Industrial Average stocks. The “Spyders” were a fund that held all 500 stocks that make up the S&P 500. Today there are thousands of ETF’s giving the investor the opportunity to invest in just about any slice of the global financial world. You can buy an ETF that owns only: health care stocks, companies that do business in China, gold, euros, or almost anything you want.
What makes ETF’s attractive is that you can buy or sell them any time during the trading day, unlike open ended mutual funds and unit investment trust that only trade once a day. This gives you the chance to place limit orders, sell them short, or trade based on the market moves during the day, if this fits your trading strategy.
Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges and expenses. Please read the prospectus carefully before investing. ETFs do not sell individual shares directly to investors and only issue their shares in large blocks Exchange-traded funds are subject to risks similar to those of stocks. Investment returns will fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.
Asset allocation does not protect against loss of principal due to market fluctuations. It is a method used to help manage investment risk. Past Performance does not guarantee future results. This material is for informational purposes only and is not meant as Tax or Legal advice. Please consult with your tax or legal advisor regarding your personal situation.
The opinions expressed are subject to change with economic and market conditions. They are not meant as investment advice. Forward looking statements and market forecasts cannot be guaranteed and may not come to pass.