What is an ETF?

In all my consultations with my clients, I have a lot of them ask me about what are the assets in their portfolios and how do they work? I just want to take a few minutes and explain, because I utilize a type of financial asset called an ETF in all of my portfolios for my clients. Here is what an ETF is.

An Exchange-Traded Fund (ETF) is like a basket of investments, such as stocks or bonds, that you can buy and sell on a stock exchange like a single stock. It follows a specific market or group, like tech companies or gold, so you can invest in many things at once without buying them individually. This makes ETFs an easy way to invest in different areas of the market.

ETFs help reduce risk because they spread your money across many investments in the basket. They usually have lower fees than other funds, which saves you money over time. Plus, you can see what’s inside the ETF every day, so you know exactly what you own.

For your investments, ETFs are a simple way to grow your money or earn income while keeping costs low. They’re great for beginners and experienced investors alike because they’re easy to trade and let you invest in a variety of markets. With ETFs, you can build a portfolio that fits your goals and adjust it when you need to.

ETFs sound a lot like mutual funds, right? Here's how they are different. ETFs and mutual funds both hold a mix of investments like stocks or bonds, but ETFs are simpler to trade because you can buy or sell them on a stock exchange all day, like a stock, while mutual funds only trade once a day at a set price. ETFs usually have lower fees, making them cheaper to own, and they show you their holdings daily, so you know what’s inside. Mutual funds often have higher fees and may not share their holdings as often, which can make ETFs a more flexible and cost-effective choice for your portfolio.

So, I hold ETFs in my client portfolios, and in my own portfolio, for a few simple reasons: 1. Lower costs; 2. A broad diversity of holdings; 3. Transparency; 4. Quickness and ease of trading. This makes my portfolios efficient, low cost, and  transparent.

Remember, BUY LOW SELL HIGH!