In its 25-year history, the exchange traded funds (or ETF) has become one of the fastest-growing businesses in the investment arena worldwide. It is a type of fund that provides liquidity to virtually all types of marketable assets, for both large and small investors and allows anyone to set up a professional portfolio. It all started in 1990 in Canada and in 1993 in the USA, when the first ETFs were launched. In Canada the pioneer was the Toronto Index Participation Shares, which ended up being closed later, and in the US with the famous S & P 500 SPDR fund, which today is the largest ETF in the world.
Currently, ETFs account for almost 1/3 of the total volume of US stock exchanges, totaling more than $ 2 trillion in assets in the US and $ 500 billion in the rest of the world. This growth testifies to the importance of this investment for both ordinary investors and large banks and funds. It’s time for you to know why etf investing has achieved so much success and how you can make the most of them. More details.
But why bet on etf investing
ETF or Exchange Traded Funds, as its name implies, is a stock exchange fund that can consist of stocks, REITs, fixed income securities, commodities, options, miscellaneous swap contracts, currencies, etc. However, unlike traditional mutual funds where the investor applies and redeems the fund’s money, in the ETF you buy and sell the shares of another investor in the stock market environment. There are several implications in this regard.
- Another important issue is the ease of access. In investment funds there are minimum values for initial application, usually in the thousands of dollars. Inretirement etf, the minimum is 1 ETF, whose price is traded from below $ 10 to up to $ 150 in general. And this facility is not just in relation to the minimum value to invest. It also opens up the possibility of people investing in liquid assets or those in other countries, as there are ETFs that have rather unusual assets such as Poland’s debt securities or shares of companies in Thailand that are difficult for investors to access common. As already mentioned in the Fixed Income section, there are debt securities (Bonds) that can cost up to 200 thousand dollars each. If this bond is within the exchange traded funds, it is possible to have it for a few tens of dollars.
- In general, an ETF does not try to beat market indices through active portfolio management, but instead follows certain indexes. So it is often said that an ETF is as good as its index. This standardization in portfolio composition helps to reduce management costs, as managers do not have to pay for their investments. Automatically, the retirement etf buys and sells assets in order to rebalance its portfolio and follow the corresponding index update. This makes the ETF more transparent, since it is already known at the outset which stocks or bonds the ETF has and should buy, just look at the index. In addition, the ETF managers themselves post their composition on a daily basis, facilitating investor assessment.
- Another important difference is that in the traditional fund the quota is redeemed according to its net value, whereas in the ETFs the value of the quota may be above (traded at the premium) or below (traded at a discount) of its net value (Net Asset Value). However, in the more liquid exchange traded funds ETFs tends to be less active in portfolio management than the one with individual stocks. The latter, when he decides to rebalance the portfolio, ends up being obliged to. Learn more details at: http://www.netpicksetfinvestor.com/updated-etf-power-ratio-123016/