What Are ETFs?

What are ETFs?

It is a question asked by many beginner investors, since Exchange-Traded Funds (that’s what the acronym ETF stands for) are a very popular investment mechanism. While ETFs have been around for about 20 years, their popularity has increased only during the past decade or so. Thus, when looking at what ETFs are, we should focus on several key aspects.

The most important thing one should know about an ETF is that it is an investment fund, and even though it has many similarities with mutual or index funds, the price of ETF shares can rise and fall during the day, which gives speculative investors an opportunity to take advantage of intraday price fluctuations. The prices of some other types of investment funds are calculated only after the market is closed and the same price is offered for all investors. This, combined with low costs and fees, makes it easy to understand why ETFs are the soup de jour for investors hoping their retirement will be filled with many spectacular places to visit in their elderly years.

At the same time, ETFs, being investment funds, give their investors the possibility to invest in a basket of companies, basically like mutual funds or index funds. However, in this matter, ETFs are closer to index funds, because many ETFs are also following certain indices from the market. But, unlike index funds, an ETF doesn’t have the goal to beat a particular index, but they rather follow its activity.

Donald Yacktman

*Donald Yacktman (pictured above), manager of Yacktman Asset Management, has ties to Yacktman Focused Fund Service Class (YAFFX).

The similarities between ETFs and stocks is also an advantage taken into consideration by investors. Aside from the aforementioned intraday price volatility of an ETF, there are a couple of other points, such as the possibility of going long or short on an ETF. Also, an investor who considers going into ETFs does not have any restrictions in terms of an invested amount, being able to buy as much as even one share.

So, ETFs look like an interesting investment opportunity, combining positive aspects of both investment funds and stocks. An investor who considers putting some money into an ETF has the possibility to choose from several hundreds of ETFs, the largest of which we will mention below. In terms of trading volume, the largest of all is the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), with daily trading volume of over $132.5 million and assets under management of over $150.4 billion. As it comes from the name, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) follows the activity of the S&P 500 index. The second and third largest, we should mention are the iShares MSCI Emerging Markets Indx (ETF) (NYSEARCA:EEM) and iShares MSCI Japan Index (ETF) (NYSEARCA:EWJ), with average trading volume of $72.4 million and $52.4 million respectively.

In conclusion, ETFs represent profitable exchange-traded products, and are worth taking a look at. Their advantages, like price flexibility, low costs and attractive tax efficiency are actually what make ETFs look good in comparison with their peers from the investment universe.

If you’re still asking the question, “what are ETFs,” you can look at one ETF that will prepare you for the next stock market crash.

Disclosure: none

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!