Exchange Traded Funds:
The second most important investment of 2018 behind Real Estate, Exchange Traded Funds can provide great upside and potential growth for your money.
Many people aren’t even sure what exchange traded funds (ETFs) are in the first place. Well allow me to put it in the simplest form that I can think up:
ETFs are essentially funds, much like stocks, that can be traded on the major exchanges. This includes the New York Stock Exchange (NYSE).
There are other exchanges such as the OTCBB for smaller companies that have issued initial public offerings (IPOs) of shares but we will stay away from those for now as they are generally deemed Penny Stocks and not meant for year long investment.
An ETF holds different assets. These assets can be in the form of commodities like gold or silver, or maybe a variety of stocks and bonds, or both.
ETFs allow you the ability to invest in many different types of assets at once and generally track the market based on the value of the assets that they hold.
So you may be asking why ETFs would make the list of the best investments of 2018. Well, that’s easy.
ETFs increase and decrease in value when the overall market indices do the same. When we are in a bull market, or a market that is generally rising in simpler terms, it is easy to generate passive revenue from ETFs.
If the overall market, or more specifically the market surrounding an ETFs holdings is increasing, then your investment also increases accordingly.
So why wouldn’t you just invest in individual stocks and hope for the big gains?
ETFs are easier than picking individual stocks because they automatically diversify your portfolio and allow you to start investing for less up front cost.
When you pick individual stocks you may have to invest $150 a share or more.
For example, take Tesla…a company growing in popularity over recent years that swings pretty heavily in stock price and has seen solid gains overall.
If you were to invest in Tesla at the time this article was written you would have to come up with around $340/share.
This is a lot of money when you first begin to allocate portions of your wealth to the market. In addition, you are limited to purchasing whole shares of Tesla’s stock which means if you have less than $680 you are unable to buy 2 shares of Tesla stock.
ETFs allow discounted prices for investors, but still allow you to hold some sort of stake in popular stocks.
Say an ETF has holdings in Tesla and Tesla does well overall. You see gains in your portfolio proportionate to the exposure that ETF has to that particular stock.
Quite often, you can purchase stake in an ETF for a much less up front investment than buying particular stocks directly.
Many ETFs trade below $100 so you can accumulate a much larger quantity of holdings in that ETF. In addition, the money you make on your investment can grow at a more rapid rate than it would if you were only able to buy a singular share of individual stock.
This is especially the case if that stock underperforms its associated sector and the ETF you have invested in tracks the overall sector.
Most people believe that they can beat the overall market through day trading, but generally speaking, that is not true. Up to 93% of those who call themselves “day-traders” fail to exceed the gains of the S&P 500 year over year.
Simply put, if you were to invest in just the S&P 500 you would have seen around a 10% gain year over year over the past 2o years. Financial advisors, traders, and investment bankers actually only see up to around 5-6% gains per year on average.
Get started investing in ETFs and generating returns on your investments today. Sign up for RobinHood today and invest with zero trading fees!
If you still have questions about ETFs ask them in the comments below and I will do my best to answer!
Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.