Howdy Wall Street Willy. I have a really big question for you. What is an ETF?
Well, an ETF is basically an Exchange Traded Fund, which pools money it gets from investors, and invests collectively.
Do they only invest in stocks?
No, they can invest in stocks, bonds, and other securities like mutual funds.
Why would you invest in an ETF, and not directly in stocks and bonds?
Well first of all, you have diversification, which means if you buy one stock of the ETF, then It’s equivalent to buying all of the stocks it invests in.
And the investing is also managed by experts that manage the ETFs.
But how do I buy and sell ETFs?
Well, they’re treated just like stocks. You can buy them through stock brokers.
But do I pay extra money (commission or fees)?
Sadly, you do pay a commission, just like for stocks. But the good news is that after you buy it, you do not have any loads, or percentage of the money that’s invested, as a fee.
Yay! But how do I even make money from ETFs?
Well, you can make money from ETFs with appreciation in price. If the price goes up, and you sold it for more money than you bought it for, then you could make money with ETFs.
And also, any dividends that are paid by the stocks that are held by the ETF company are paid to you as well.
Well, how much money do I need to invest in an ETF?
Well, there’s no minimum amount that you need to invest in an ETF. You could buy one ETF, or a million ETFs.
Wow, a million ETFs is a lot!
Yes, it is.
And one more thing super Cooper – remember, finance is your friend!
Podcast: What are Exchange Traded Funds (ETFs)
Ever wondered what the similarities and differences are between Mutual Funds and Exchange Traded Funds (MF and ETF)? Find out the similarities and differences in terms of how they are bought and sold, how their prices change, their fees commissions and loads, their income tax implications, their holding restrictions, their investment minimums, and more. Also find out which one is better – whether you should invest in Mutual Funds or Exchange Traded Funds!
Show notes and transcript at: Comparison: Mutual Funds vs Exchange Traded Funds (MF vs ETF)