Reader Question: What Are ETFs?
Once again I’ve got a great reader question. Here it is:
I’ve been hearing a lot about ETFs lately from friends. What are they, and how can I trade them?
This is an excellent questions. ETFs offer yet another investment option for your portfolio. Let’s have a look at them:
ETFs: A definition
ETF stands for “exchange traded fund.” Essentially, this means that an ETF is a fund that is traded on a stock exchange as if it is a stock. It is a fund — or a group of stocks — that you can trade as if it were one financial instrument. It is important to note that ETFs do not contain mutual fund portfolios that are actively managed.
However, ETFs can contain financial instruments other than stocks. There are currency ETFs that track the performance of a variety of currencies being exchanged in forex trading. (Some forex traders use them as hedges.)
At any rate, you trade ETFs on the stock market as you would a stock, and the commissions and/or flat fees are similar on an exchange traded fund to what they would be on a regular stock.
Adding ETFs to your investment portfolio
It is worth noting that some ETFs are still considered somewhat volatile right now. They are gaining in popularity, though, because they can temper some of the riskier investments (like currencies) while still providing growth. And there are some conservative exchange traded fund options that grow at a slower pace.
Before adding ETFs, check your investment portfolio for diversity and your risk tolerance. If you need something a little different, and you can handle the risk, it might be a good choice.
The Street offers a look at 37 of the newest ETFs.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions.
Tags: ETFs, exchange traded fund, investing blog, investment portfolio,
risk tolerance, investments, forex trading
