The investment world swears by the fact that investing in exchange traded funds (ETFs) is a fantastic option for large and small investors alike. Taking the investing world by storm and trading live on stock exchanges, ETFs are a popular choice when it comes to investment portfolio diversification. However, what often leaves investors wondering, especially the ones beginning their investing profiles, are the different ways to invest in ETFs and apt strategies to invest in ETFs.
Letâs dig in to get some clarity-
What are ETFs?
There are two directions to understand ETFs- Firstly, consider ETFs to be a collection of various securities- stocks, bonds, commodities etc. and secondly, recall all that you know about mutual funds, as ETFs are in many ways similar to mutual funds.
We can define ETFs as a basket of securities holding various underlying assets and trading on a stock exchange, just like a regular stock. They undergo price fluctuations as they are bought and sold and offer low expense ratios with fewer broker commissions (relative to stocks).
You can address ETFs as index funds that trade like stocks.
Types of ETFs
ETFs are primarily used to generate income, hedge/ partly offset risk in an investor's portfolio, facilitate speculation and price movements. The below table outline the various types of ETFs-
Why Should You Invest in ETFs?
Researchers opine that ETFs began trading over a couple of decades ago but have been gaining in popularity against more mature mutual funds. Moreover, the money invested in ETFs has increased massively over the years and investors presently have a hoard of options to choose from.
So why this growth? Why do investors like ETFs?
Ways & Strategies to Invest in an ETF
Ideally, ETFs trade via online brokers and traditional broker-dealers. In todayâs contemporary world, even robo-advisors make use of ETFs in their investment products.
Below are the ways to invest in an ETF-
Besides these, experts believe that in a long-term based investing strategy situation, investors should purchase particular ETFs to bridge the gap in their diversified portfolios. On the other side, in a short-term investing scenario, ETFs can be used to hedge positions.
There is no doubt about the fact that the ETF market is growing and is here to stay. They can be valuable building blocks of an investment portfolio with the potential to bring both growth and income. The trick is to keep costs low and hunt for ETFs that best fit to an investorâs investing strategy.
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