The word ETF comes from an Acronym for exchange-Traded-Funds and it’s in my opinion one of the safest ways to invest in the stock market. Even though there is always that possibility of picking the right stock and hitting a home run, picking individual stocks can be risky business, if you are looking to make a solid return every year and grow your money investing in exchange traded funds is the way to go in my opinion. Now this is not investing advice so before investing any of your money do your own research, however I have personally seen very good results through out the years and anyone can start investing with very little money.
Which ETF’s do I like investing in?
ETFs are investment funds that trade on stock markets in the same way as stocks. Unlike traditional funds, it is not necessary to wait for the closing net asset value to make buy or sell trades, since they can be bought and sold at any time during trading hours on the market, like stocks, that is the great advantage unlike traditional funds, which in the latter if it is necessary to wait for the closing liquid value to carry out buy or sell trades to carry out buy or sell trades , this allows for more liquidity and at the same time that one can close the trade when it deems it appropriate according to its strategy.
Other ETFs are those that replicate the behavior of precious metals such as the (GLD) that replicates the behavior of gold, no longer having the need to buy Gold to invest in gold, thus allowing us greater liquidity. There is also the ETF (Pall) that replicates the behavior of palladium. One of the benefits of investing in metals this way is that you do not have to hold or store any of your assets, when you buy an index you are more liquid and can buy or sell at any time without having to find buyers or sellers. As much as I like holding some Gold, I do prefer the liquidity that investing this ways provides.
Without a doubt one of the most interesting parts of ETFs is their variety, there is even what is called “ultra reverse” ETFs. Within reverse ETFs, reverse or ultra-short leveraged ETFs exist. These products are riskier, but have a greater potential benefit. They replicate the reverse behavior of an index to 200%. In addition to those with the reference index the best known (Nasdaq 100, S&P 500…), there are also those that allow to invest downwards in certain sectors: real estate, financial, pharmaceutical, healthcare, industrial… or in the price of certain raw materials such as oil and gas. An example of ETF ”ultra reverse’ is the ETF (EUO) that 200% replicates the reverse behavior of the Euro, which if for example the Euro drops by 1% this ETF rises by 2% and vice versa.
Here are the exchange traded funds that I personally like investing in:
- $SPYG – This is a growth index that allows you to invest in multiple growth companies.
- $SPY – Tracks the top 500 companies and it mimics the S&P 500
- $SPYD – My favorite cash flow index fund which pays dividends every year
- $VOO – Tracks the market cap weighted index of US stocks
These are my favorites and now that the entire market took a big dip I am personally investing in them and adding to my position daily, not only do they all provide upside potential but they also pay dividend if you are a cash flow investor.
How are ETF’s created and who manages them?
The shares of ETFs are generated by a so-called creation and rescue process, which occurs on the stock exchanges once a day in the primary market. It allows market specialists (such as institutional trading offices and other approved market agents) to exchange stock baskets or cash in exchange for shares in ETFs (and vice versa) without a significant impact on the underlying market. In essence, this process can provide unlimited liquidity to the fund. Effective liquidity available to the fund as a whole becomes a function of the turnover of its underlying index components, unlike secondary market volumes of ETFs shares. In this context, the liquidity of an ETF goes beyond what can be seen ‘on screen’. This ability to create and rescue shares at any time keeps the price of ETFs in line with the underlying net asset value, and ensures that the liquidity of these funds is derived from the underlying securities they comprise.
Some Advantages of ETFs:
-They allow the small investor to diversify their portfolio as they can perfectly allow anyone with a small amount of 500 or 1000 dollars access to invest in many shares of different companies through an ETF representing the movement of a sector or index, reducing exposure and risk to a company.
-Liquidity: allows the investor to enter and exit his position in a few seconds when he decides to do so unlike mutual funds. Not only can you buy and sell at the click of a button but you can track your growth in real time with charts and stock information. This is great for the investor who wants to stay informed so buy and sell decisions can be made.
-Access to invest in stocks from emerging countries without having to be in those countries. Specially when the US markets are at all time high’s, gaining access to up and coming countries will allow you to invest and increase your upside potential.
-Invest in raw materials, coins and precious metals with a very large ease. Plus the ability to hold Gold or Silver without having to store it is critical here, holding metals can be very expensive, investing this way allows you to trade them at their current value without having to pay a broker or a 3rd party.
I believe that with all these advantages that these instruments have, which have appeared in recent years and that there is more and more variety when New ETFs appear, we must take them into account among our investment alternatives.