Guide towards Investing in Electronic Traded Funds (ETFs)

In the field of investment ETFs have gained popularity for both small and large investors.  As compared to mutual funds, they are acquired at low cost and also has tax benefits.  If properly managed and uses, ETFs can be a good option for investment especially for those individuals considering investing for retirement. Nonetheless there are some of the ETFs which are riskier as compared to others hence it is the responsibility of the investor to do adequate research to determine appropriate EFT that is secure and able to yield more returns. Apart from being tax efficient, they operate on high level of transparency, and carry less fees unlike other investment options.

In 2015, approximately 4000 electronic traded funds were accounted for worldwide based on the special reports. Subsequently, SPDR S&P 500 was listed in the New York stock exchanges last year as the largest ETF across the world. Vanguard Russell 3000, iShares MCSI index, and Schwab Fundamental are some of the leading stock broad market ETFs as established by the both NYSE and NASDAQ. Electronic traded funds are categorized into United States market index, foreign market index, leveraged ETFs, Bonds ETFs, Stock ETFs, commodity, foreign currency, and dividend ETFs.


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There is no much difference between mutual funds and ETFs because they all operate by pooling money from investors through stocks and bonds. Also, both have very low cost of investing. However, the difference lies in the ETFs which use brokerage to buy stocks instead of directly obtaining them through a recognized fund company. One of the setback of ETFs is that it has no dividend reinvestment plan plan which is mostly preferred by the investor plugging back what they have harvested. Also, they have small discounts for those new investors hence they are not suitable for income-oriented investors. ETFs are considered to be for growth investment and retirement rather than those investors that are focused at earning immediately after investment.

The first step towards investing in ETFs to be able to buy and sell is to create a brokerage account. In regard, it is crucial to do adequate research to determine the appropriate brokers to invest in such as vanguard, fidelity, TD Amritrade and Schwab. The second step is to focus on the costs involved to acquire respective accounts. Apart from fees, also check in the annual expense ratios of the ETFs. Ideally, the smaller the expense ratios the more the investor accrues and pocket at the end of the investment period. Some areas around the globe have high financial markets which leads to higher expense ratios which affects the investments in ETFS.

As a result of the diversification of the ETFs, it is prerequisite step to create a diversified ETF portfolio after obtaining an account from the chosen broker. United States boasts of lager stock market therefore, the investors needs to identify on what to invest as provided by the ETFs. By creating a diversified portfolio, it helps to minimize the risk that comes with focusing only in one thing. The ultimate step is to determine and structure a formula on how to keep adding to your ETF holding.