ETF intro

Are you someone who has some extra money to invest?  Do you have a hunch about where a particular industry or market is going to go?  Then this blog is for you. 

This post will explain what an ETF is an why you should be invested in them.  The rest of my posts will be dedicated to diagnosing the current markets and recommending ETFs that will help you make money in current market conditions.  ETFs are essentially mutual funds that trade on an exchange.  The ETF owns a basket of stocks, and when those stocks appreciate in value, the ETF itself appreciates.  

An ETFs underlying net asset value is calculated by taking the current value of the fund’s net assets divided by the total number of shares outstanding, and is published every 15 seconds throughout the day.  Because the funds trade on an exchange price is determined by supply and demand, that is why the ETF’s market price can differ from its net asset value.  The way ETFs are structured helps keep the gap between the two pretty small. 

ETFs offer tremendous benefits to the investor.

 -They have lower expenses and fees compared to traditional mutual funds:

This is because most of the funds are passively managed to follow a particular index, unlike mutual funds which are actively managed.  Also many ETFs trade for free when you are using an online broker, which is awesome.  

The average ETF expense ratio is 0.44% while the average index fund costs 0.74%, everyone loves paying less.

-ETFs are very tax friendly:

The manager of the fund doesn’t need to constantly buy and sell stocks, as with any index fund.  The special way that ETFs are structured allows them to be more tax-efficient than traditional index funds.

-Diversification:

ETS provide an efficient way to invest in a specific part of the stock or bond market.  For example, Small cap US stocks, Energy companies, Emerging market bonds, THE POSSIBILITIES ARE ENDLESS.  You can play all sorts of markets with ETFs.  

-User-Friendliness:

ETFs can be bought or sold at any time during the day, just like stocks.  Mutual funds, on the other hand, are priced only once at the end of each trading day.  Some ETFs  do require brokerage fees for every trade, typically around $8.00.  But some ETFs do trade for free which once again is really awesome.

Hopefully this post helps you understand what an ETF is and why you should be invested in them.  The rest of my posts will be suggestions on how to use ETFs to make money in current market conditions.