whatisETF.net

What is an ETF – in simple words so a non-financial person can understand?

An ETF is like an stock symbol. For example you decided to invest in a company called Microsoft and you look-up its stock symbol, which is MSFT, so you can purchase its shares (you are investing in Microsoft by buying shares). An ETF is the same concept, that it has a stock symbol, and  shares you can buy to invest in a particular ETF. Now there are many many different ETFs in the market and each have their own symbol like many companies you can invest and they have their own stock symbol as well.

How an ETF investment is different than a specific company investment (ie our Microsoft company example above) is that ETFs are a basket of companies into one stock symbol. Like a fruit basket that has apples, oranges etc… in one basket. You can get an ETF that contains gold companies only, one that has oil companies only, one with all energy companies (gas/oil/ethanol) etc in Brazil etc… . There are tons of variety of ETFs and new ones are coming to market every day. They are easy to trade, already diversified with few or many companies, and have low management fees from the companies that make them. There are some however that might be dangerous (ie leveraged ETFs) for your investment strategy.

Overall ETFs are a great tool that can save you lots of money if you don’t want to hand your hard earned money to mutual funds money managers in the bank that barely return anything to you. With a little reading on ETFs you can start investing how you want and where you want without paying the bank money managers heavy management fees.

An that concludes our simple explanation of ETFs. Now for a detailed explanation of ETFs:

What is ETF for someone that knows the financial markets?

• ETF stands for Exchange Traded Fund.
• ETF is a basket of assets such as: stocks, indices, commodities, futures, bonds etc… .
• ETFs are traded like typical stocks on the stock exchanges, intra-day and you can buy and sell anytime like the stocks.
• ETF is good because of very low management fees, tax efficiency, diversification, and stock like features and many more… .
• ETFs are a new tool that have gotten popular recently. They have been available in the US since 1993 and in Europe since 1999. In case you wonder why you have never heard of them.

An example of an ETF is stock symbol HMU trading on TSX (Toronto Stock Exchange) that has over few base metal companies in its basket. So if one company goes belly up, your ETF will not be very affected and your investment will not be hit as bad.

Comparison of ETF, Mutual Fund and an Individual Stock.:

Kinds of ETF:

• Index ETF
• Commodity ETF
• Bond ETF
• Currency ETF
• Leveraged ETF