As someone who has been depositing money into a securities or brokerage account — an account allowing me to buy and sell various types of investments — for almost a year, I have learned that there are certain ways to get the best returns on my initial investment.
Yes, investing money into individual stocks is great, but why invest in singular company’s stock when you can put your money into Exchange Traded Funds? More commonly known as ETFs, they are funds that expose you to several companies’ stock, all grouped into one fund and under one ticker symbol, the three or four letter abbreviation of which a company trades under on stock exchanges.
Investopedia states that an ETF is, “a type of pooled investment security that operates much like a mutual fund.”
In simpler terms, it is a special fund that is made up of tiny pieces of stocks from specific companies. You can buy and keep these pieces in different investment accounts. The fund itself either owns a piece of companies’ stock or follows a specific stock index and owns pieces of the companies in that group.
Forbes states that a stock or market index tracks the performance of a certain group of stocks, bonds or other investments. A good example of this would be the S&P 500, the most well-known stock index, which tracks the 500 largest corporations on U.S. stock markets.
One of the most popular ETFs follows the companies under the S&P 500 and it holds small percentages of those companies’ stock, such as Apple, Microsoft and Amazon, in its fund, per Yahoo Finance.
ETFs may be similar to mutual funds but there are also many differences. Investopedia also says that investing in an ETF is usually more cost-effective than putting your money into a mutual fund, and they are considered to be more liquid, meaning that they can be converted into cash more easily than other investments.
Mutual funds are also sometimes exclusive to certain investment corporations, such as Vanguard or Fidelity, two of the major brokerage firms that offer a wide array of ways to invest money. This means that you must have an account through these certain companies or you cannot buy into them. There are some ETFs that are exclusive to certain companies and people, but exclusivity is more common in mutual funds.
Those who invest in ETFs will not have to worry about losing their money if a certain company’s stock goes down since ETFs have several different companies’ stocks under their one fund, which causes less fluctuation in price because it is diversified with those different companies.
Investing in ETFs is one of the best ways to diversify your investments and it stores your money in different ways than other traditional investments.
Now it is your time to start investing in ETFs; open an account that allows you to buy and sell various types of investments and look at which ones may be right for you. You can invest any amount of money and it will help you in the long run.
