What is an ETF and Why Should You Invest in One

An ETF (or Exchange Traded Fund) is a mechanism for investing in a range of assets with a single purchase.

They have become popular in recent years amongst people who want to start investing without putting in the time to research individual stocks, or holding the risk of owning individual stocks.

The definition of an ETF, provided by the U.S. Securities and Exchange Commission, says “exchange-traded funds are SEC-registered investment companies that offer investors opportunities to pool their money in a fund that invests in bonds, stocks, and other securities.”

ETFs have been around since the 1990s and can help both beginners and seasoned investors to grow their wealth over time with minimized risks. In fact, the average historical growth of the S&P 500 is around 10 percent a year. That means, by investing in index funds that track that market index, you may be able to make similar gains — averaged over the long term.

One of the exchange-traded funds that track the S&P 500 index is the iShares Core S&P 500 ETF (Ticker symbol IVV) which has returned +75 percent over the last 5 years.

ETFs are traded on stock exchanges such as the New York Stock Exchange and the NASDAQ, in a similar fashion to how stocks are traded. They allow you to diversify your investment portfolio by putting your money into a basket of securities that tend to be less volatile.

The ETF provider creates a basket of these assets and sells ‘portions’ to investors. Most ETFs are passively-managed funds and aim to gain the same return as a specific market index; these are typically the most affordable ETFs. Some ETFs are actively-managed funds that buy and sell shares based on a stated investment objective.

Advantages of investing in ETFs

• They allow investors to buy into a basket of shares, commodities, etc that would need a large amount of capital for using little capital which can sometimes be as little as $50.
• Diversification- ETFs use the old saying, “don’t put all your eggs in one basket.” Having a mix of investment types and sources allows investors to diversify their portfolio and, therefore, mitigate risk and make more room for reward
• They are very liquid. As they act like shares, investors can buy ETFs with a lot of flexibility
• Dividends. Dividends. ETFs pay out dividends, on a pro-rata basis, the full amount of a dividend that comes from the underlying stocks held in the ETF

Examples of ETFs

• KraneShares CSI China Internet ETF (KWEB) – KWEB tracks the CSI Overseas China Internet Index, which consists of China-based companies whose primary business or businesses are focused on internet and internet-related technology. The Index is free-float market capitalization-weighted and includes publicly traded securities on either the Hong Kong Stock Exchange, NASDAQ Stock Market, or New York Stock Exchange.
• Aberdeen Standard Gold ETF Trust (SGOL) – Aberdeen Standard Physical Gold Shares ETF (“the Shares”) are issued by Aberdeen Standard Gold ETF Trust (“the Trust”). The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations. The Shares are designed for investors who want a cost-effective and convenient way to invest in physical gold.
• iShares MSCI World ETF (URTH) – The iShares MSCI World ETF seeks to track the investment results of an index composed of developed market equities. Exposure to a broad range of developed market companies around the world in a single fund.
• Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) – Invests in stocks of companies located in emerging markets around the world, such as China, Brazil, Taiwan, and Sout