Do you want to own the universe of securities while balancing out the risks of all? If yes, then investing in ETFs is the way forward for you!But hey! What are ETFs? What are their types? And how do you know it’s the right kind of investment for you? These are a few questions that this blog is going to answer for you!
ETFs or Exchange Traded Funds are a bucket of different types of securities that are traded on a stock exchange.
What this means is, ETFs offer you the option of investing in a pool of securities that follow the same index. It may be a basket of shares of different companies or a basket of bonds or commodities, or a fusion of all like an exotic box of chocolates.
That's not all! The beauty of ETFs is that they can be bought and sold at any time of the day, unlike Mutual Funds.
But why should you invest in an ETF and not a mutual fund? To most, they sound just the same but we are here to tell you that they are not!
So, the major difference apart from the flexibility to trade any time during the market hours is that ETFs don’t have a minimum lock-in period. That means with ETFs you can invest or divest as and when you like and make your money liquid whenever you need. And that’s what makes investing in ETFs so awesome!
Let’s now understand the various types of ETFs available in the market to nail the concept of ETFs to the T.
The interesting thing about ETFs is that they offer a wide range of investment options to help diversify your portfolio. But how do we know which ETF to invest in? Let’s understand the various types of ETFs first to decode this further.
Equity ETFs: Equity ETFs are a basket of shares of different companies that track specific indices such as the ‘iShares Core S&P 500 ETF’, and ‘SPDR S&P 500 ETF Trust’ tracks the S&P500 Index.
Bond ETFs: Looking for an investment that gives you a fixed amount of return or returns? If yes, then Bond ETFs are your thing! A Bond ETF or Fixed Income ETF is a pool of bonds of different companies that you can invest in. For instance, the Vanguard Short-Term Treasury ETF offers exposure to short term government bonds, focusing on treasury bonds that mature in one to three years.
Commodity ETFs: ETFs that track the price of commodities like gold, silver, or even wheat is a part of this category. Heard a lot about gold? Invest in multiple stocks of gold with Commodity ETFs such as SPDR Gold Shares is one of the most popular ETFs in the world, offering exposure to Gold an asset class.
Real Estate ETFs: Are you interested in real estate investing but don't want to invest a gigantic sum of money? Real Estate ETFs such as ‘Vanguard Real Estate ETF’ will allow you to invest in REIT (Real Estate Investment Trust) securities and related derivatives and real estate projects without actually owning a property or dealing with its complexities.
Sector and industry ETFs: If your instinct and research point towards a single sector like high-level technology, petroleum, or medicines and drugs, Sector and Industry ETFs are your type. The Sector ETF like Vanguard Information Technology ETF tracks a broad index of companies in the information technology sector which the company considers to be the following three areas; software, consulting, and hardware.
Factor ETFs: You have a style, so do ETFs! Pun intended! ETFs with focused market size or investment styles come under this category. It can be framed in small-cap value or large-cap growth as per the style of the ETF. For example, iShares MSCI USA Size Factor ETF tracks an index of large and mid-cap US stocks.
Currency ETFs: We do know that the dollar goes up and down every day, so how about investing in Currency ETFs? Currency ETFs such as ‘Invesco DB US Dollar Index Bullish Fund’ offer exposure to a basket of currencies related to the US dollar.
ETFs give you the best of both, sorry, all the worlds. They allow you to diversify your investments without putting much effort into researching and picking each security as per your investment goals. It’s basically a ready platter of investments. Order one and get all.
But why should you invest in ETFs? Are they really the best match for you? Let’s find out.
ETFs offer downright investment diversification minus the effort. With ETFs, building a diversified portfolio is just one click away.
Since ETFs allow you to invest in a basket of securities, they automatically give you the benefit of all while balancing the risks. So, even if one company’s equity is falling down, you are safe because you have other higher-performing shares/assets in your basket.
ETFs include tracking the indexes, which means you would know the underlying graph of your investment beforehand. This eliminates the guesswork in investing and you are always well aware of what you are getting into!
The word ‘exchange’ is literally a part of an ETF aka Exchange Traded Funds, which means you can simply buy and sell your securities at the market price at any time.
In conclusion, ETFs are easy peasy! They are low-cost, transparent, flexible, diverse, and more importantly simple. And if you are a millennial who is just beginning your investment journey, then ETFs can be a good start!
qBut how to go about it? How to know which ETF to invest in? Well, that’s where we come into the picture! With RuDo wealth, you just need to answer a few simple questions, and then let us take care of your wealth-building journey! Intrigued? Join our waitlist to learn more!
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