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Exchange Traded Funds are shares of funds that are traded all day long on major stock exchange markets. They are just like regular stocks but are most found on the American Stock Exchange. These funds are investing vehicles that hold dozens, if not more, of companies under one umbrella and the investing theme is unified. For example, the fund may be deal with business in the biotech industry or companies that make up the Dow. Therefore, all ETFs have ticker symbols which are more attractive than the publicly traded companies.
There are EFTs to represent practically any segment in the world, and you have the opportunity to get exposure to either foreign indexes or American one. There are EFTs that track everything from bonds to REITs to utility sector to S&P 500.
If you are the type of investor who does not like to take risks or you prefer to build up your portfolio slowly, then Exchange Traded Funds are for you as long as you are ready to invest a lump sum. Just like regular stocks, ETFs can be bought and sold anytime in the market through a brokerage account. However, ETFs do not offer direct investment programs, so adding systematic amounts to build up your portfolio would be an expensive affair.
When you sell your shares of ETFs, you will most probably do it at a profit and you will have to pay capital gains taxes. Annual expenses for ETFs range between 0.1 percent and 0.65 percent. Some ETFs can be more expensive and this amount is deducted from the dividends. Exchange Traded Funds are the perfect investment vehicles for people with limited funds, and you can even buy a single share through a brokerage account.
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