Why ETFs Should Be In Your Portfolio

An Exchange Traded Fund (ETF) is a fund that holds a group of assets such as bonds and stocks. They are intended to represent a specific segment of the financial market. ETFs are traded similar to individual stock in that they can be bought and sold throughout the trading day. Since ETFs offer exposure to multiple securities, they protect investors from a significant drop in an individual stock. This makes them excellent for new investors wanting to test the market before making more advanced investments.  There is an ETF for nearly anything you can imagine but let’s take a look at some of the most common types. 

Commodity ETFs: 

Investors can buy a commodity ETF that tracks the price changes of a particular commodity. Some of these ETFs track the commodity itself such as gold or oil. Others track the performance of companies involved in the production of a commodity such as a gold miners ETF.

International ETFs: 

International funds focus on foreign securities either globally or in a specific country. Popular ETFs in this category follow the performance of emerging markets which are nations with economies that are developing and becoming more engaged globally.

Sector specific ETFs: 

A Sector specific ETF tracks a certain sector or industry. This can be anywhere from tech to healthcare. These offer less diversity than a broad market fund making them slightly more risky. This is because they have little to fall back on if a certain economic condition is detrimental to a specific industry. The opposite can also be true as seen with the current COVID-19 pandemic. The economic conditions of the pandemic has allowed tech companies to significantly outpace the performance of the overall market.

Inverse ETFs: 

If you’re anticipating a drop in the market, an inverse ETF may be for you. Also called “Bear market” ETFs, These funds will offer you an opportunity to see gains during market downturns as they perform opposite from the market. These can be broad, such as a S&P 500 inverse, or specific, such as a technology sector inverse.

ETFs are also rather affordable, making them perfect for new investors with little to invest initially. For example, the SPDR S&P 500 ($SPY) ETFs top five holdings are Apple, Microsoft, Amazon, Facebook, and Google and its current price for one share is $337.44. If you were to invest in one share of each of this ETFs top five holdings, you would need roughly $5,500. Due to their extraordinary diversity at an affordable share price, ETFs would make an excellent investment for new investors as well as a great addition to a current investors portfolio.  Always remember to learn and educate yourself! A great man once said “An Investment in knowledge pays the best interest” -Benjamin Franklin. When it comes to investing nothing will pay off more than educating yourself.