One of the hottest investing options out there right now is the ETF. It has taken the industry by storm,especially in the last few years. They have become the go-to choice for the beginners as well as seasoned investors looking for a no-frills way to get a good return without a lot of effort.
In 2007 Warren Buffett gave this advice to individual investors who don’t have the time to research individual companies. He suggested that cheap index funds were the best way to invest in the stock market.
The best way in my view is to just buy a low-cost index fund and keep buying it regularly over time, because you’ll be buying into a wonderful industry, which in effect is all of the American Industry.
If you buy it over time, you won’t buy at the bottom, but you won’t buy it all at the top either. Warren Buffett
What is an ETF?
An Exchange Traded Fund or ETF is a marketable security that tracks and index, a commodity, bonds, or a basket of assets like an index fund.
The ETF differs from a mutual fund in that it trades on the stock exchange like an individual stock. The price of an ETF will fluctuate up and down during the course of a day. ETFs typically have higher liquidity than mutual funds and much lower fees, which makes them an attractive investment for investors, particularly ones that are newer to investing or those looking for lower fees.
Because it trades like a stock, it’s price will fluctuate during the day, unlike the mutual fund that is calculated at the end of the day.
One advantage of an ETF is that you get the advantage of an index fund in regards to the diversification, plus an ability to short sell, buy on a margin or buy a single share (there are no minimum requirements for deposits).