Exchange traded funds, meet the ETFs

The projection of an ETF is to follow as closely as possible the value of a collection or index of underlying assets. It is as if a company that offers financial services, acquires a basket of assets, where its fund is composed.

This company sells these shares, which comprise the value of the fund, through brokerage houses. The trading of these shares can take place on the stock markets. Be aware that existing ETFs are designed for each asset model.

Learn more about ETFs

The ETFs that exist are based on almost any type of asset or security that is available within the financial market. The stock ones, track in a company’s sector of its stock. The bond ones, can invest in Treasuries of a certain maturity, junk bonds, and even high-grade debt.

The exchange ones can buy currencies, be it of a region or of an entire nation. Hybrids on the other hand already combine several types of assets. ETFs have the power to have both ultra-wide and ultra narrow focus. In other words, tracking a broad market or a small group.

As for fees, when owning ETF shares, it is common to have to pay for a fee, which refers to annual administration. But don’t worry these ETF fees are considered low. It is also possible to have commission charges, coming from some brokerage firms. So before you buy an ETF, be aware of the fees involved.

More information about ETFs

Once you have a stock ETF, if you sell your investment, the proceeds from it are treated equally when you sell a stock. If you want to make investments in ETFs, remember to pay attention to their tax implications.

ETFs have some similarities with mutual funds, but their differences are quite important, even more so when it comes to tax. When investing in a mutual fund, a portion is acquired relative to the underlying assets, while in ETFs this is different.

Their shares, that is, the ETFs, are usually traded on exchanges during the course of the day. As for mutual funds, trading usually takes place at the end of the day, and they are either sold or bought.

The various types of ETFs and how to invest

There are several types of ETFs that are most common. These are index, bond, foreign market, commodity, industry or sector, currency ETFs. In addition to ETFs that are focused on distinct investment strategies, such as smart alpha or beta, dividend growth.

Other ETFs do short selling, where they gain when the value of the underlying assets is lost. Developed ETFs offer up to a triple, which can be gain or loss, on the underlying indices or assets.

To be able to make investments in ETFs, you can use almost any brokerage company, either to buy or sell them. There is also the option of using a robo-advisor, who would make these investments on your behalf. Investing in ETFs gives you many advantages, such as simple stock market trading, tax efficiency, instantaneous diversification, lower cost investments, and others.