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ETFs—A Better Way to Invest?

Understand Exchange Traded Funds and their advantages over other types of investments.

By
Laura Adams, MBA,
December 31, 2008
Episode #104

Page 1 of 2

Exchange traded funds or ETFs are becoming popular investment choices. This show will help you understand what they are and if you should consider investing in them.

What’s an ETF?

ETFs are innovative investments that have been around since the early 1990s. One of the reasons for their growing popularity is that they combine the flexibility of investing in individual stocks with the diversity of investing in mutual funds. ETFs allow you to buy an interest in a portfolio of securities with the purchase of just one investment. They’re basically a mutual fund that can be bought and sold just like shares of stock of publicly held companies.

Popular ETFs

The largest and most well-known ETFs track broad equity indices and therefore offer great diversification to investors. The Standard & Poor’s Depository Receipts is one of the oldest ETFs. The abbreviation for this fund, SPDR, earned it the name Spiders. It tracks the S & P 500 Index and trades under the symbol SPY.

Another popular ETF is called the Dow Diamonds, which trades under the symbol DIA. It tracks the 30 stocks that make up the Dow Jones Industrial Average. These are the largest companies and the most widely held stocks in the United States.

ETF Benefits

There are four major benefits to investing in these or any ETF. They are liquidity, low cost, diversification, and tax efficiency. Let’s take a closer look at each of these benefits.

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