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| *Ostroff, Fair and Company>>>Investing |
Vanguard ETFs... what is it? |
I see these have been doing well. What is it exactly and is it worth investing in? Is this for short term or long term? An indexed ETF is essentially like any indexed mutual funds with the following advantages over a mutual fund. -Diversification is an attractive feature of ETFs. Instead of taking concentrated risks by purchasing individual stocks, investors can own an index of stocks with ETFs. -Lots to choose from and the number is growing steadily. -The ETF sells shares when people buy the ETF shares and along with a reasonably close match of the ETF price compared to the Net Asset Value of the stocks it holds. That is about all the management that is needed. -low expense ratios for EFT index funds -index funds are very tax efficient, if held -can be traded any time the stock market is open for trading -ETFs, unlike mutual funds, can be shorted. -There are no minimum holding periods for ETFs. You buy and sell just like stocks. A disadvantage is some ETFs are so focused they may not have much volume to sell at the price you want. /// ETFs are a type of fund that can be bought and sold on the open market just like a stock, but are comprised of multiple stocks just like a fund. So whether they are good or bad depends on the specific ETF, just like any fund or stock. ETFs have the advantage over mutual funds in that you can buy/sell any hour that the stock market is open. You don't have to meet any particular minimum investment. The disadvantages are that you do have to pay the brokerage commission for buying and selling, which amounts to a bigger percentage, the smaller your investment. Also, there is still a much larger universe of mutual funds to pick from than ETFs. But that's changing slightly as more ETFs are introduced. So if you are a long-term investor, if you have a lump sum to invest, you could consider ETFs as an alternative to mutual funds. If you are setting up an automatic buy-every-month investment and your monthly investment isn't large, you might still be better off in traditional mutual funds. first off all investing is long term. if you are in it for the short term then you are trading. vangaurd etf's are exchange traded funds. they are similiar to indexed mutual funds except they trade intra-day just like stocks (bought and sold through out the day at different prices). wheter you should invest in it or not depends on your other holdings. me ETFs are similar to mutual funds, and are really designed for long-term use. Here is an excerpt from my free book: "Close-Ended Funds and ETFs: Funds that Act Like Stocks 鈥?Sort-of Most of you will never invest in these, so just skip this part if you like. I hesitate to bring this up, but the popularity of Exchange Traded Funds (ETFs) warrants a mention. Close-ended funds are the old version of mutual funds. The fund manager can trade stocks within the fund's portfolio, just like an open-ended fund. However, close-ended fund managers cannot redeem the fund's own shares and so the shares are always outstanding. If you wish to sell your shares, you will have to find another investor to buy them. Sometimes, the shares trade above or below their underlying value. In the truest sense, an ETF is a basket of stocks. First, a group of investment firms acquire thousands of stock shares and place them in a holding account with an investment bank. In exchange, the investment bank creates ETF shares and the firms sell the ETFs to investors. Each ETF share represents partial ownership in this batch of stocks. Many ETFs are based on an index, so the batch of stocks remains stable. The ETF itself charges a small annual fee, similar to a mutual fund. Investors trade Exchange Traded Funds (ETFs) on the major stock market exchanges. However, ETFs may also be repurchased by the investment firms and exchanged back for their underlying stocks. This ensures that ETFs trade very close to their underlying value, unlike close-ended mutual fund shares. This situation is called price arbitrage, the process of making a riskless profit by exploiting price differences when you buy a security from one market and sell it in a different market at the same time 鈥?I have no idea why I am even telling you this, because this is so trivial. The point I would like to make is that ETFs are viewed as the new, "sexy" version of index funds. They try to combine the best of both worlds: low costs and passive investing, with the ability to trade like a stock or bought on margin. However, if you are frequently trading ETFs, are you really a "passive investor"? Their advantage is that they have a slightly lower expense ratio than index funds. They have several disadvantages, though. ETFs are more complicated at tax time, you are charged a commission for every trade, and you must manually reinvest the dividends. ETFs are best for one-time lump purchases. If you make frequent small investments, like you do with retirement investing, you are better off with a no-load index mutual fund." - page 152 For a free copy of my book, go to my website and download it in PDF format. Click on my profile and read my info to get the website. |
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