a new approach to investing that greatly simplifies the research required to put together your own portfolio. ETF’s are like mutual funds in that they are composed of a basket of underlying equities. Rather than having a fund manager that choses stocks based on the fund manager’s research into individual stocks, the ETF is usually constructed to mirror the stocks held in a published index. There are several categories of ETF’s being offered. Here is a brief list with examples from each category.
- US Market Indexes: Dow, Russell, S&P, Large Cap, Mid Cap, Small Cap
- Sector or Industry: Energy, Financials, Materials, Consumer, Healthcare
- Real Estate: International, United States
- Global or Country: Emerging Markets, Europe, Asia, China, Japan, Brazil, Russia
- Fixed Income: US Treasuries, Corporate Bonds, Municipal Bonds, Other governments
- Commodities: Gold, Silver, Oil, Coal, Sugar, Grains, Livestock
- Currencies: US Dollar, Euro, Brazilian Real, Russian Ruble, Indian Rupee
If you have an opinion or a gut feeling about the direction of any country or its currency, or the direction of an industry or commodity, then ETF’s offer you an immediate way to align your financial interests with your thesis. You need not research a huge list of companies that operate in the area you are considering for investment. ETF’s greatly reduce the risk present in any one company’s stock. The basket of companies owned by the ETF will insulate your portfolio from any disastrous earnings report or corporate scandal. The commodity and currency ETF’s are just as volatile as the underlying commodity or currency, but they offer the convenience and liquidity of a stock. Currency ETF’s eliminate the need for a futures account as has been the case for trading in the foreign exchange markets. Likewise, commodity ETF’s eliminate the need for futures trading accounts for oil and grains and metals. Gold and silver ETF’s can also be used in place of taking physical possession of coins and bars which come with the cost of storage.
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