I wanted to make a quick post to cover ETF investing and give some of the main advantages of Exchange Traded Funds and why they’re starting to become a preferred investing model over the classic mutual fund.
They do have a lot in common with mutual funds, so let’s start there.
Just like a mutual fund, ETFs are a diversified investment. However, they’re much easier to sell and there are fewer restrictions on them.
Exchange Traded Funds are still relatively new to the investing scene and there aren’t a lot of investors or financial managers who have the expertise necessary to invest in them so that’s probably why you haven’t heard as much about them as other investing models.
There are 6 main advantages to ETF Investing:
1) Low Cost – While management fees for a mutual fund can run as high as 3$ or 4% a year, ETFs are dramatically lower. Some of them are as low as .15%.
2) Liquidity – Exchange Traded Funds generally trade just like stocks and you can buy and sell them as you please. In fact, there are some ETFs that trade millions of shares every day. It’s easy to get in and out of positions quickly just like it were a single stock.
3) Leverage - There are some leveraged ETFs available that allow you to get two to three times leverage in your investment. You don’t need to get a margin account for this – it’s built into the ETF.
4) Profit In A Falling Market – It can be pretty rough holding investments when you know the market is heading down. Some ETFs, however, move inverse to the index they’re tracking which means that if the market falls, these funds go up in value. So if you know the market is a sinking ship, you can profit from that knowledge instead of waiting around for the market to rebound.
5) Investment Purity – With ETFs, you can focus on certain sectors or subsectors. There are funds that are focused on healthcare, precious metals, oil, and many others (there are over 800 at least count). That allows you to identify areas of the market that are likely to go up (or down, depending on the ETF) and focus your dollars there.
6) Trending – I saved the best one for last. Since many ETFs are in the same sector, many (but certainly not all) of them trend predictably. That allows the savvy investor to look at charts and see where the ETF is likely going without the inherent risk of trying to predict which way just one stock in the index is going to head. (I think we’ve probably all played that game and lost before.)
The nice thing about ETF investing is that you can make a great deal of money with them without the risk and time involved in day trading. You can trade them when the markets are closed.
Learn how to get 6% returns each month (that’s over 100% per year when compounded) in just 5-10 minutes a day after the markets close with ETF Investing.
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