SEP
26
Weaving Spiders and Other Exchange-Traded Funds Into Your Investment Net

A spider isn't just a subject for science classes anymore. As this article explains, it's also a type of exchange-traded fund that combines the diversification and cost-effectiveness of index funds with the trading flexibility of stocks.

 

A spider isn't just a subject for science classes anymore. It's also a type of exchange-traded fund (ETF) -- an investment that combines the diversification and cost-effectiveness of index funds with the trading flexibility of stocks. If you think investing in ETFs might be a good idea, here are some issues to consider.

 

The ABCs of ETFs

 

ETFs are "baskets" of equities, shares of which are traded on an exchange. Like stocks, ETFs can be traded throughout the day at real-time prices. Like index funds, ETFs usually have low expense ratios and portfolio turnover because they aren't "actively" managed. The managers simply choose the underlying stocks so the "basket" matches the makeup of the appropriate index. ETFs might be designed to track a broad market or a sector.

Standard & Poor's Depositary Receipts, or Spiders (SPDRS) -- which track the S&P 500, an index of 500 of the largest companies in the United States -- were the first ETFs, premiering in 1993. Spiders now cover numerous sectors of the S&P 500 as well as other defined market capitalization groupings.

Other ETFs include Qubes, which mirror the largest 100 firms of the technology-driven Nasdaq Composite Index, and Diamonds, which move in step with the 30 large-cap companies that make up the Dow Jones Industrial Average. The increasing popularity of ETFs has resulted in increasing numbers and types being rolled out.

 

Weighing the Issues

 

One advantage of ETFs is their potential tax-efficiency. Unlike with mutual funds, ETFs need not be sold to satisfy investor redemptions, a move that can create taxable capital gains for mutual fund shareholders. A drawback is that their ease of trading may encourage more frequent trading, so it's important for investors to remain focused on their long-term goals.

By drawing on benefits of both index funds and stocks, an ETF can potentially help reduce portfolio risk and increase returns. To learn more about ETFs or for help sorting out which ones may fit your portfolio best, contact your financial advisor.



RECENT POSTSCATEGORIES
Tell A Friend Tell A Friend
Connect with us on: Go to LinkedIn  Go to Facebook  Go to Twitter  Go to Google+  


 
 
 
7077 Koll Center Pkwy #120 Pleasanton, CA 
Phone: (925) 223-8868
Email: info@sierrapfa.com

All written content on this website is for informational purposes only. The information and opinions are provided by Sierra Pacific Financial Advisors, LLC (SPFA) and are subject to change without notice. While SPFA takes reasonable efforts to obtain information from sources that it believes to be reliable, but SPFA doesn't guarantee its accuracy or completeness.
 
Nothing on this site should be construed as a solicitation or offer to acquire or dispose of any investment advisory services. Fee-only financial planning and investment advisory services are offered through Sierra Pacific Financial Advisors, LLC, a Registered Investment Advisor in the state of California.

Any links to other sites are merely provided to the user of the SPFA website for convenience and informational purposes. None of the website links should be interpreted as referrals or endorsements from SPFA. The user in password-protected areas of Client Center, is responsible for any use of the password and for maintaining its confidentiality.


This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.