I was reading the Globe and Mail “Report on Business” section last week and it talked about ETFs. I have heard the term numerous times, but honestly don’t know a lot about them. So I decided to find out.
What does ETF stand for?
ETF is short for Exchange Traded Fund.
Okay, great. So, what exactly is an Exchange Traded Fund (ETF)?
The easiest way to understand ETFs is to think of them as mutual funds that trade like stocks. An ETF holds assets, such as stocks, commodities, or bonds. It usually tracks an index – such as a bond index or a stock index. They are actually traded like a stock on an exchange, and their value can go up and down during the course of a trading day.
Why would I want to buy one?
There are various reasons people may want to consider buying an ETF:
· You get the diversification of an index fund, but the added bonus of being able to sell short, buy on margin and purchase as little as one share.
· The expense ratios for most ETFs are lower than those of the average mutual fund.
So, which one should I buy?
Sorry – that’s beyond the scope of my knowledge! If I had a head for investing at all, I wouldn’t need a day job! There are lots of ETFs out there, dealing in anything from gold and silver, to crude oil. It all depends on what you’re looking for, and what is most important to you. A good place to start learning more would be the Global and Mail ETF page.
Have you ever invested in ETFs? If so, have you been happy with them? Or are you like me, and just learning what they are?