by ETF stands for exchange-traded fund, and it’s a type of investment that can be traded on the stock market. According to professionals at SoFi, “An ETF is an investment fund that you can buy and sell like a stock.”
You probably don’t think about ETFs too much unless you’re a financial expert or someone who has money to invest, but they’re actually pretty common and they can be an extremely smart way to grow your wealth.
In this article, you’ll go over some of the basics of ETFs so that you know what to expect when investing in them or talking to anyone about their benefits.
What are ETFs?
ETFs are a type of investment that allows you to buy shares in an asset class or industry. For example, if you want to invest in the stock market and want exposure to European companies but don’t want to buy individual stocks, then buying a European Equity ETF would be your best bet.
The good news is that there are literally thousands of these products on the market today and they offer a wide variety of potential investments for everyone from beginner investors all the way up to experienced traders.
What are the fees?
Before you choose a specific ETF, there are a few things that deserve your attention. First, fees matter. They can make or break your investment strategy. There are two types of fees to be aware of:
- The fee charged by the ETF provider
- The trading commission charged by your brokerage house
What’s the ETF’s portfolio makeup?
ETFs are a basket of stocks. This means that when you buy an ETF, you’re investing in a group of assets (i.e., stocks or bonds) without having to pick individual companies yourself. You can invest in the same types of companies or different kinds of companies depending on what you want out of your investment and what the ETF is designed to do.
Which ETF is right for you?
The first thing you need to consider when choosing an ETF is your investment goals. An ETF based on gold is not going to be a good fit if you are looking for an investment with more stable returns, like bonds or real estate. On the other hand, if you’re looking for higher growth potential, then an ETF that invests in stocks may be right for you, especially because these types of investments have historically outperformed other types over time.
Who manages the fund?
The next question you should ask is who manages the fund. The answer to this question will tell you if they are a reputable firm and how long they have been in business. If they are a new company, it’s best to stay clear of them as you can’t be sure that they have enough experience under their belt yet.
What is the ETF’s performance history?
Past performance is not indicative of future performance. This should be obvious, but sometimes it’s easy to forget that when you’re looking at your portfolio and thinking about what went well and what didn’t. If you’re investing in ETFs for the first time, don’t be taken in by short-term returns and instead focus on your long-term goal: building wealth over time.
In conclusion, ETFs are an excellent way to invest in the stock market. They offer many benefits over traditional mutual funds and individual stocks, including lower fees and greater diversity of holdings. However, before investing in any ETF you should do some research on their performance history and portfolio.
