What Is An ETF And How To Invest In It (Infographic)
ETFs are really popular financial instrument nowadays. But what is an ETF and what’s the big deal investing in such? ETF is an abbreviation from Exchange Traded Funds and actually is an investment company, that collects money by selling shares to the broad public and invests the collected money in different assets like shares of other public companies, commodities, and all other kinds of assets. This way people, who have shares in such a fund get their money managed professionally and without their participation. They are just like mutual funds, except that they are traded on a regulated stock exchanges, like The New York Stock Exchange. Each ETF tracks/invests a certain asset or a group of assets, this makes these funds instruments for investing in these assets.
There are different types of ETFs. Some of them track a stock index like SP500 or Dow 30 index. These funds buy all the components (stocks) of the index, in the same proportion in which they are used to calculate its value. This is how you get a fund that changes in price just like the index. As you may know, you can’t directly invest in SP 500, but a good way to do that is by buying share of and ETF fund, that tracks it. Because of the fact that ETFs are passively managed, their performance depends on the performance of the assets they follow, not on the performance of the management. This actually minimizes the risk of choosing poorly managed fund.
ETFs may follow any other asset or security. For example there are commodity ETFs investing in gold, copper and other metals; there are such funds buying bonds, estates, and other assets. Currently, a bitcoin ETF is opening, that will allow people to invest in the innovative crypto currency. The site www.etf.com is a place, where you can find a big collection of different types of such funds, read detailed information about each of them and get a better idea what they are. It’s a really nice ETF screener.
What’s The Big Deal Investing In An ETF?
So, what’s the deal? These funds have some big advantages like:
* Your money are managed by highly skilled professionals – if you don’t know much about investing, this might be a good reason for you to invest in such a fund.