Exchange-Traded Funds commonly referred to as ETF's are marketable securities. These funds follow large asset groups. The assets could be comprised of an entire index like the S&P 500 or the Nasdaq. It could also hold bonds or commodities. The strength of an exchange-traded fund lies in its ability to spread across broad fields. ETF's by nature minimize the likelihood of large losses due to downturns in narrowly focused sectors.
- ETF's are traded like common stocks and experience price fluctuations as they are traded.
- ETF's are more liquid than mutual funds. That is, they can be quickly bought or sold with negligible impact on price.
- ETF's usually have low fees that warrant notice from small and mid-size companies.
- Like stocks, ETF's do not have their net asset value calculated once daily at the close of the business.
- In many cases, ETF's can offer advantageous tax strategies.
ETF Investment Sectors
Exchange-Traded Funds cover a multitude of financial sectors. The following areas are worthy of consideration:
- US Stocks - ETF's in US stocks cover literally thousands of US companies.
- US Bonds - Bond ETF's are a solid component in a balanced portfolio. They provide stability and diversity in asset holdings.
- Short-Term Treasury - ETF's in the treasury sector can afford modest yields (2%) coupled with short-term maturity (2 years). Understand short-term treasuries won't bring the highest returns but may be a good place to invest over the short haul.
- International Stocks - ETF's in international stocks often make sense for investors. They come with slightly higher expense ratios, but this can be offset by better diversification and less vigorous valuations. Owning these ETF's can act as a buffer between US stock exposure (and vice versa).
Exchange-Traded Funds as we know them to today have been around since 1993. These funds are an attractive investment tool for small and medium businesses. Please contact us for a no charge consultation at your convenience.