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ETF

An ETF, Exchange Traded Fund, is a security that tracks an index and is comprised of a conglomeration of different stocks.

An example would be the Homebuilders Index. An exchange traded fund may have seven of the largest homebuilder stocks in its portfolio. Thus, it is likely that it will reflect the overall performance of securities around the country in this sector.

This is appealing to an investor who may feel strongly that the housing market will rise, but has no idea which individual homebuilder stock to purchase.

Any class of asset that has a published index, and is liquid, can be made into an ETF.

Morningstar, an investment research firm, stated that Exchange Traded Funds are cheaper and more tax-friendly than regular mutual funds. The average expense raito is 0.4%, as compared to 1.42% for US Stock funds.

However, many investors feel that these Funds, are only a slight variation of the Mutual Fund that invests primarily in a particular index. The main difference being Mutual Funds can only be purchased at the end of the day, while exchange traded funds can be bought and sold like regular securities throughout the day.

There are more than 300 Exchange Traded Funds listed on the domestic exchanges. This number will grow rapidly in the upcoming years.

Currently, these funds have given investors the opportunity to diversify on an International level. Many individuals are fearful about investing in foreign securities, however, much of the anxiety accompanying global investing has been removed with the creation of these funds.

Giving individuals the opportunity to invest in a specific sector, without having to commit to a single-security, is a welcomed addition to the investment world. This luxury is the primaary reason investment in these funds is growing at such a rapid pace.



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Disclaimer: I am not a Registered Investment Advisor. All information on this website is my opinion and is put here for entertainment for my readers. I do not recemmend making financial decisions based upon my opinions.

I will always give full disclosure if I own any stock that I am recommending.

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