What is an ETF, and how can I invest in one?
A sort of investment fund known as an ETF, or exchange-traded fund, contains a portfolio of securities, including stocks, bonds, commodities, or a mix of these, and it may be traded on stock exchanges like regular securities.
ETFs enable investors to acquire a diverse portfolio of assets in a single transaction, and they are available for purchase and sale at market prices set by supply and demand throughout the trading day.
An ETF can be purchased and sold through a brokerage account just like a stock, making the process simple. ETF charge ratios are usually less expensive than actively managed mutual funds.
ETFs allow for exposure to a variety of assets, industries, and geographical areas. For instance, an ETF may concentrate on a particular industry, such as technology or healthcare, or it may follow a stock market index, such as the S&P 500. There are ETFs that follow several markets, including those in Asia and Europe.
ETFs are investment funds that contain a variety of securities, including stocks, bonds, commodities, and more. They may be bought and sold on stock exchanges, just like regular equities.
This procedure aids in maintaining parity between the market price of the ETF and the underlying assets’ net asset value (NAV). Like with individual equities, supply and demand determine the market price of an ETF.
The fact that ETFs, like stocks, are subject to market volatility and that the value of an ETF may change depending on the performance of the underlying assets it owns, the markets, and other variables is another crucial point to note.
As with any investment, it’s crucial to do your homework and speak with a financial advisor before investing in ETFs.
How to invest in an ETF
Purchasing ETFs is like buying individual equities. The following are the fundamental steps for investing in ETFs:
Open a brokerage account: You must invest in ETFs with a company that offers ETF trading. Your choices are a traditional brokerage account or a robo-adviser platform.
Selecting ETFs Determine which ETFs you want to invest in after researching them. Be careful to consider the expense ratio, performance history, and underlying assets of the ETF.
You must place an order through your brokerage account after choosing which ETFs to purchase. The kind of order you place will depend on your investment philosophy and risk appetite.
It is critical to monitor your portfolio and make any required adjustments after making an ETF investment.
Also read: What are leveraged and inverse ETFs in 2024?
It is crucial to remember that ETFs are subject to market fluctuations just like equities are. As a result, the value of an ETF may alter in response to modifications in the value of the underlying assets it owns, general market circumstances, and other factors. As with any investment, it’s imperative to complete your research and consult a financial expert before making an ETF investment.
The largest ETFs by assets under management as of April 2024
For more details on each ETF, click on the link below.
https://www.etf.com/etfanalytics/etf-finder
SPY: SPY is the most well-known and oldest US-listed ETF, and it consistently ranks first in terms of the largest AUM and trading volume. The fund tracks the massively popular US index, the S&P 500.
VOO: VOO captures the large-cap space well. The fund tracks its index extremely well. However, like all S&P 500 funds, it defines large caps as the S&P Committee sees them, which means it includes a large allocation to firms that we consider to be midcaps. VOO is a popular ETF due to its low expense ratio, which provides complete exposure to the S&P 500.
VTI: VTI is a good choice for investors or traders looking for comprehensive, total-market equity exposure, including micro-caps.
QQQ tracks a modified market-cap-weighted index of 100 NASDAQ-listed stocks. QQQ is one of the best-established and typically one of the most actively traded ETFs in the world. Often referred to as “the triple Qs,” it’s also one of the most unusual.
VUG: VUG tracks the CRSP US Large Cap Growth Index, which selects large- and mid-cap stocks with growth characteristics. The index selects stocks based on six growth factors.
IWF: IWF tracks an index of US large- and mid-cap stocks selected from the Russell 1000 Index with the highest growth characteristics, based on Russell’s style methodology.
VGT: VGT tracks a market-cap-weighted index of information technology companies. VGT is one of the most diverse market-cap-weighted technology ETFs available, yet it still reflects the concentrated nature of the space.
XLK: State Street’s XLK grants investors the opportunity to gain exposure to numerous powerhouse tech firms all under a single ticker.
IVW: This ETF offers exposure to large-cap companies within the growth sector of the U.S. equity market.
QUAL: QUAL tracks an index of US large- and mid-cap stocks, selected and weighted by high ROE, stable earnings growth and low debt/equity, relative to peers in each sector.
TQQQ: TQQQ is a levered fund that delivers 3x exposure only over a one-day holding period of NASDAQ-100 stocks. The underlying index includes 100 of the largest non-financial companies listed on NASDAQ based on market capitalization.
GLD: GLD is the first company to invest directly in physical gold. The product structure reduced the difficulties of buying, storing, and insuring physical gold bullion for investors.
Also read: Largest ETFs: The Top 100 ETFs by Assets
Due to their diversity, low costs, liquidity, transparency, and tax efficiency, investing in ETFs may be a wise decision for many individuals. Investors can reach their financial objectives by using ETFs, which offer a practical and affordable way to gain exposure to a number of markets, industries, and geographies. ETFs provide investors with more flexibility than conventional investments like mutual funds since they permit investors to purchase and sell shares at any time throughout the trading day.