EXCHANGE TRADED FUNDS (ETF)
Basics about Exchange Traded Funds (ETFs)
My recommendation is to start easy, and in doubt it is never a wrong strategy to buy an Exchange Traded Fund (ETF), especially an index tracker ETF. An ETF is a fund traded on the stock exchange, it is listed and traded like a stock. Investing in an ETF is as easy as it gets: you simply buy its shares online with a stock broker, exactly like you would buy a share with a broker a stock in the stock market.
Another advantages of the ETF is that they are very cost effective. The fees that ETF fund manager takes are extremely low compared to traditional mutual fund managers: mutual funds can charge 1% to 3% in annual fees ; index fund expense ratios are generally lower, while ETFs are almost always in the 0.1% to 1% range. Moreover unlike mutual funds there are no hidden fees when you join or leave the exchange traded fund.
Now you are going to ask me: why are ETFs so cheap? Well it is simple: since ETFs usually have very simple management methods and are usually run by high-tech firms automating many aspects of the fund management, so the ETFs fund managers have low costs to operate and can afford to take much much lower management fees than traditional fund management firms.
Why is it interesting to buy an ETF instead of stocks? When you invest in an ETF, even though you have very little capital you can spread it over a large group of companies, so it also spreads your risk. The chance that all companies go unexpectedly much worse at the same time is actually quite low, as usually some companies do better and some do worse so it evens out.
Another advantages of the ETF is that they are very cost effective. The fees that ETF fund manager takes are extremely low compared to traditional mutual fund managers: mutual funds can charge 1% to 3% in annual fees ; index fund expense ratios are generally lower, while ETFs are almost always in the 0.1% to 1% range. Moreover unlike mutual funds there are no hidden fees when you join or leave the exchange traded fund.
Now you are going to ask me: why are ETFs so cheap? Well it is simple: since ETFs usually have very simple management methods and are usually run by high-tech firms automating many aspects of the fund management, so the ETFs fund managers have low costs to operate and can afford to take much much lower management fees than traditional fund management firms.
Why is it interesting to buy an ETF instead of stocks? When you invest in an ETF, even though you have very little capital you can spread it over a large group of companies, so it also spreads your risk. The chance that all companies go unexpectedly much worse at the same time is actually quite low, as usually some companies do better and some do worse so it evens out.
Index Tracker Exchange Traded Funds (ETFs)
The ETFs that I prefer are the ones that are the most simple to understand: Index Tracking Exchange Traded Funds. This is a special group of Exchange Traded Funds that simply follow an Index, such as the S&P500 or the Dow Jones Industrial Average. So they invest in the stocks that compose the index, with the same weighted average as the index. With Index Trader Exchange Traded Funds you really know what companies you invest in, the fund cannot fool you.
Moreover as we wrote before, most "traditional" fund manager hardly ever beat the index. So as a retail investor youare surely better off not using them and buying directly the index yourself using an ETF. For instance in his famous bet, Warren Buffer invested in an index tracker from the Vanguard Group that tracks the changes of the S&P500 to bet against a Wall Street Hedge Fund Manager relying on Wall Street's most advanced investment strategies... and he is winning ! (see full story here).
Some index trackers that we like (you can traded all of them very simply with your online broker):
Moreover as we wrote before, most "traditional" fund manager hardly ever beat the index. So as a retail investor youare surely better off not using them and buying directly the index yourself using an ETF. For instance in his famous bet, Warren Buffer invested in an index tracker from the Vanguard Group that tracks the changes of the S&P500 to bet against a Wall Street Hedge Fund Manager relying on Wall Street's most advanced investment strategies... and he is winning ! (see full story here).
Some index trackers that we like (you can traded all of them very simply with your online broker):
Commodity Exchange Traded Funds (ETFs)
Commodity EFTs are also something worth checking. They give you the possibility to invest efficitently in specific commodities, or raw materials. Some commodity ETFs are basically giving you the possibility to invest in cotton, oil, gas, corn, or precious metals. They basically reflect exactly the price of those raw materials. So if you buy an ETF you can buy this precious metal, oil, corn without having truck delivering this to your door, which is quite nice.
And also these ETFs are traded in fairly liquid markets which means that when you want you want to sell your oil, gold,.. you simply sell the ETF and get your money within 5 minutes on your bank account. Which is also very nice.
Here are some commodity ETFs which are worth checking (you can traded all of them very simply as shares with your online broker):
And also these ETFs are traded in fairly liquid markets which means that when you want you want to sell your oil, gold,.. you simply sell the ETF and get your money within 5 minutes on your bank account. Which is also very nice.
Here are some commodity ETFs which are worth checking (you can traded all of them very simply as shares with your online broker):
Other types of Exchange Traded Funds (ETFs)
Exchange Traded Funds (ETFs) are a huge success, and one can say that they have dramatically changed the fund industry. So now every month your hear of new ETFs which are being started. We personally think that because of this success the quality is not always the best. Therefore if the management strategy is not plain simple (such as index trackers, commodity, or US treasury debt) then you should be really careful in investing in a specific ETF. As they are chances that, as traditional fund managers, the ETFs are more gambling than investing in companies with durable growth.
We only above give you list of a few ETFs that we like, and we will not focusing an reviewing all the ETFs on earth. Some other sites are doing this real well, and if you want to see all the ETFs on earth, we advise you to check the ETF Database.
We only above give you list of a few ETFs that we like, and we will not focusing an reviewing all the ETFs on earth. Some other sites are doing this real well, and if you want to see all the ETFs on earth, we advise you to check the ETF Database.
