Exchange Traded Funds have been an investing staple for the last 20 years. What’s so great about them is that they offer the average trader incredible flexibility to trade on different indexes. That being said, they can be confusing and even overwhelming to the beginner ETF trader given the massive amount of choice they have; from oil, to gold, to silver and even agricultural and tech products, these are investment options that can work for you if you know what you’re doing.
ETF’s can be traded like stock, and they are regulated by three bodies, BlackRock Inc., Vanguard and State Street Global Advisors. Before settling on a particular ETF, make sure to do adequate research by looking at how it has been performing over the last 5 to 10 years. This will give you a much clearer picture on whether your choice will provide you with long-term profitability. Armed with your research, you can look around for a broker.
An ETF broker should be registered with at least one regulatory body such as the Financial Industry Regulatory Authority found here. This will give you the peace of mind in knowing that you are picking someone who is answerable to a higher authority should anything go wrong with your investment.
Common ETF Types
- Gold ETF’s
- Commodity ETF’s such as coal, livestock and oil
- Pharmaceutical ETF’s
- Emerging market and foreign ETF’s
Make sure to diversify your portfolio within reason so you can maximize profits. In addition, a great way to gain expertise in an industry is to invest in that industry’s ETF’s without getting your feet wet. A good example here is investing in livestock in Argentina without having to go to the ground and carrying out transactions with farmers. This can even be done online on trading sites that offer great prices for their ETF’s as well as signals to help you know when to put or call (sell or buy) on an hourly, daily, weekly, monthly or yearly basis.
ETF’s also provide a place where investors can put away liquid cash until a time when they are ready to use it for other purposes. For example, if you have an extra $1,000 gotten as a tax refund, you could decide to purchase a few ETF’s and make your money grow over a short or long period of time.
Another reason why you should consider ETF’s is the accountability and transparency associated with these kinds of investments. This can be seen in the daily publishing of the types of assets available in ETF’s by brokerage companies on a daily basis. This is something that’s not seen when it comes to mutual funds and other investments who may publish asset details infrequently or unreliably.
If you’re looking to minimize risk, an ETF is your best bet as it helps you hedge risk. You can do so by deciding to sell a particular ETF in your portfolio. This can be used when the market is bearish, or when you would like to protect your position during certain market events. To be on the safe side, consider speaking to a financial adviser before getting started with ETF’s.