For many people, investments are a no-brainer. If you want to set yourself up for a great future and make sure that your family are provided for, you need to make sure that you are saving your money and investing it in the right places. Some people invest in properties while others invest in stocks. Everyone is different and each of us have a different understanding of investments.
ETFs are becoming an increasingly popular investment for people in the USA who want to gain some more money in the future. Below, we thought we would look at ETFs in more detail and discuss some of the reasons why you might want to consider investing in them. Hopefully, this helps you to make the right decision and you don’t end up losing too much along the way.
What Are ETFs?
If you have never heard of ETFs before then you may be wondering what we are talking about. Most of us are aware of stocks and how the stock market works generally but ETFs can be a bit overwhelming and a more complicated option. However, once you look into ETFs, you’ll find that they are easier to understand than you originally thought.
ETFs are a lesser-known kind of investment to the general public, but they have tons of benefits if you decide to take the plunge. Essentially, ETF stands for Exchange-Traded Fund and it is a collection of stocks or bonds. If you look at the ETF meaning, you’ll find that the stocks are unlike mutual funds and they can be bought and sold on the same day.
ETFs can be a mixture of a range of stocks, corporate bonds or even government stocks. The ETF bundles that you find will entirely depend on where you are looking and when you are looking at them.
ETFs are not managed by humans and so are unlike a few of the investments that you may have heard of. They are actually programmed by an algorithm that will track the sector. There are different types of ETFs such as stock market tracking ETFs, sector tracking ETFs and international ETFs. The type that you decide to invest in will depend on your personal interests and investment portfolio.
So, why should you invest in ETFs? Are there any benefits to doing so?
Tax Advantage
Did you know that there is actually a tax advantage to investing in an Exchange-Traded Fund? This is due to the structure of ETFs as the shares are created and liquidated without any selling securities. This helps to prevent additional capital loss or gain and so reduces the need for making it a taxable event.
When you compare this to a mutual fund, you’ll find that there isn’t the same kind of process as in a mutual fund, the fund needs to sell the securities in order to fund the liquidation. So, if you are hoping for an investment with a tax advantage, this might be something to consider. This is ideal for anyone hoping to make the maximum amount of return possible with this kind of investment.
Lower Fees
According to the experts, the fees that you will encounter when you invest in ETFs are actually some of the lowest out of the mainstream products that you can invest in. This is due to the expense ratio sitting at around 0.01-0.25%. If you were to invest $1,000 in ETFs, you would only need to pay a maximum of 50 cents in fees.
While the fees might not be your first priority, especially if you are only planning on investing in smaller amounts at first, you should really be considering this. In the long-term, an investment with lower fees can help you to save a lot of money. All of those fees add up over time.
A Transparent Option
Another great benefit to investing in Exchange-Traded Funds is that they are a much more transparent investment option. Most of the fund managers will publish their list of holdings every single day so you can always stay up to date with the latest opportunities. There is no confusion over what your investment might entail as the fund manager will be updating you with any changes.
If you were to compare this to a mutual fund, you would find that the holdings are only published on a quarterly basis. This can result in a 30 day lag which can affect the overall transparency of your investment. For those who want to be able to keep the ETF manager accountable, ETF investments are a really great option.
Save Some Time
If you are hoping to invest and make some money but you don’t have time to waste picking and tracking each stock, this might be a great option. Yes, there are some applications out there that can help you to do this automatically, but these do come with risks. For those who are just starting out, an ETF investment might be the best option as it can actually save a lot of time.
You have the option to invest in an index or a category that will be of interest to you. This kind of investment will have been checked over by the professionals and so you are greatly reducing the risk that your investment brings. If risk is a big factor for you, checking out an ETF investment might be worth your time.
We also recommend that you hire a team of professionals to ensure that everything is running smoothly here. While investing in this kind of thing helps to save time anyway, hiring a company such as Conexiom to sort out all of your trade documents. This is an extra layer of ease for you, ensuring that you don’t have to spend more time than necessary when looking into ETF investment.
Invest In A Range of Products
When you invest in ETFs, you’ll be investing in a range of stocks which is great for your portfolio. Tons of investors find it difficult to diversify their portfolio as they are not sure where they should be looking. This is what makes ETF investments so great for those who aren’t sure where to begin and want to make a big change.
With each additional investment, you’ll be diversifying your portfolio quickly and effortlessly. This exposes you to a larger group and allows you to make better decisions in the future. This is certainly something to consider if you are hoping to make an investment this year.
Where Can You Get Them?
If you have been convinced by this article that an ETF investment is right for you, you might be wondering where and how you can get these. If you are familiar with trading stocks, then you will find this process much easier than a beginner as they are typically bought and sold in the same way.
However, if you are brand new to stocks and trading then you might need to get some additional advice before you start spending your money. There are tons of options for you to choose from when you are buying ETFs and there are great investment opportunities regardless of where you look.
For example, you can purchase your ETFs directly from an issuer or you can trade through a brokerage that has either a low or no-fee service. Before you decide to trade or invest at either of these places, you must check out the company as much as possible. Don’t just invest your money blindly, especially if this is an entirely new kind of thing to you.
Are There Risks?
With any kind of investment, there are risks and so this is something that you need to be aware of. You can’t just expect to buy something and for it to result in more money coming your way, or else everyone would be doing it. While most investments come with risks, however, you will find that there are some investment types that are considered low-risk.
The truth is that ETFs are considered low-risk which means that they are a suitable kind of investment for newcomers and those who are more experienced in trading. You should always be looking out for the fees and any kind of fluctuation risks.
Additionally, capital gains distribution and lack of liquidity can cause problems along the way. However, if you remain vigilant and you are keeping track of your investments, you should be able to get this done without too much serious risk.
Consider Investing In ETFs
Now that you know a bit more about Exchange-Traded Funds and how they work, you should consider investing in them going forward. There are some great options out there and the information that you need is updated every single day to help you along the way.
Before you invest, take a look at your options and you might uncover a great service that can help you make the right investments. Take the advice that you get from the experts and use it to mitigate the risk that you face when making an investment. Don’t let the unfamiliarity of ETFs put you off this kind of investment.
Once you start investing, you’ll be diversifying your portfolio and you’ll hopefully be increasing your return before you know it. Just trade safely and you shouldn’t come across too many issues along the way.