What is an ETF?

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An “ETF” is an exchange-traded fund.  ETFs are similar to index funds in that they track the gains of a particular type of stock (like commodities or asset bundles).  They are different than index funds, however, because they can be traded like stock in small quantities and for a lower commission price.  Rather than trying to beat the market, exchange-traded funds work to closely match the gains of the indexes that they track.   There are several advantages to using ETFs and, for the most part, small-time investors stand to gain a lot from using them.

Advantages of ETFs

  • Low Expense Margin

Exchange-traded funds are less expensive to trade because they often have low commission prices (if any at all).  This means that investors can make larger profits with less overhead (expenses).

  • Diversified Portfolio

Like indexes, ETFs provide investors with a diverse portfolio of stocks.  With a wider range of stocks, the volatility of the market is less influential on the value of the investment.  Exchange-traded funds can track large indexes like S&P 500 or the NASDAQ-100 Index.

  • Improved Tradability

ETFs are much easier to buy and sell than indexes because they are traded like stocks.  Their value changes throughout the day as investors buy and sell individual shares.  It’s much easier to purchase shares on margin and short-sell ETFs, making them a much more flexible investment than indexes.

Popular ETF’s

PowerShares Golden Dragon China Portfolio

China’s economy has been one of the best in the world for several years.  This ETF tracks indexes in and around China.

EG Shares Consumer Markets Consumer Titan ETF

This ETF tracks the emerging markets across the globe.  As the global economy begins to speed up and the middle class becomes more internationalized, it pays to invest in emerging markets.

PowerShares S&P SmallCap Health Care Portfolio

Healthcare is a booming industry in the U.S. and this ETF can provide you with a diverse portfolio of small cap options.  Using this ETF is less risky than investing in specific small caps.