Learn About ETFs

August 20, 2017

One of the investment vehicles we use in our portfolios is Exchange Traded Funds or ETFs. An ETF is a lot like a mutual fund but with more flexibility (similar to a stock). Like mutual funds, ETFs allow us to have exposure to a variety of business sectors, companies and/or geographical regions without having to individually purchase all of those positions. The exchange-traded part is what makes it similar to a stock. Unlike mutual funds, which price at the end of the day, ETFs price all day long, which means you can trade them much like you trade stocks. You can buy them at one price early in the day and sell them for another price in the afternoon.

 

A major benefit of using ETFs is that they’re easy to trade and usually cost less than mutual funds because most of them are index funds, which is a fund that invests in a pre-existing index like the S&P 500. The objective of an index fund is already laid out; it is expected to match the index—which means the fund should include shares of all firms represented in the index.  That objective makes it a lot easier for fund managers to run an index fund because it requires less research and thereby fewer hours than an actively managed fund. Because index funds are cheaper to run, the savings are passed on to you in the form of lower fees.

 

There's a common misconception that ETFs are risky but I personally think that is because they are relatively new vehicles compared to things like stocks, bonds, and mutual funds. In truth, however, most ETFs are relatively simple (it would be relatively easy to build one) and straightforward and are useful in providing passive exposure to specific indexes.

Share on Facebook
Share on Twitter
Please reload

Recent Posts
Please reload

Archive
Please reload

Related Posts
Please reload

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

Subscribe to our Weekly Newsletter

2945 Townsgate Road Suite 200

Westlake Village, CA 91361

+ 888-571-5582

help@cedarstoneadvisors.com

Send Us a Message