Your guide to ETFs
In this series, we’ll introduce you to the concept of exchange-traded funds (or ETFs). You’ll find out about the types of ETFs and how they can help your portfolio. This series also offers you a comprehensive view of ETF trends and their scope in the U.S. Let’s start with the basics.
ETFs are a type of investment that combines the attractive features of both traditional mutual funds and individual stocks. Like mutual funds, ETFs are diversified portfolios of securities. Also like mutual funds, ETFs track specific sectors, regions, commodities, currencies, bonds, or other indexes. Like stocks, you can buy and sell ETFs from your regular investment account throughout the trading day.
Why you should consider ETFs
As well as their trading flexibility, ETFs offer you several key benefits. These include:
- Significant cost savings over mutual funds
- Instant portfolio diversification
- Tax efficiency
- Transparent costs and holdings
You’ll find out more about these advantages in the next part of this series.
Types of ETFs
ETFs have gained tremendous popularity. Close to 1,500 ETFs now trade on the U.S. market alone.
Given their popularity, the market offers you new players and new types of ETFs now and then. On June 17, 2014, JPMorgan (JPM) entered the ETF space. The JP Morgan Diversified Return Global Equity ETF (JPGE) is the first of three ETFs the huge bank has registered.
You can broadly sort ETFs into seven categories:
- Sector or industry ETFs—like the Vanguard REIT ETF (VNQ)
- Bond ETFs—like the iShares Core Total U.S. Bond Market ETF (AGG) and the iShares Barclays TIPS Bond ETF (TIP)
- United States market index ETFs
- Foreign currency ETFs
- Commodity ETFs
- Inverse ETFs
- Leveraged ETFs
The ETF advantage
Read on to the next part of this series to find out some key advantages of investing in ETFs over other types of investments.