Investing Basics: ETFs (Exchange Traded Funds)

In this video, Investing basics ETFs (exchange traded funds) we discuss the fundamentals on how to buy multiple stocks as opposed to one single stock. Exchange-traded funds (ETFs) have grown in popularity among investors over the past decades. This video can help you understand the risks and potential rewards of investing in this asset class.

An ETF, or Exchange Traded Fund, is a type of investment fund that works like a stock.
ETFs, like other forms of funds, collect money from investors and invest it in a variety of investments such as stocks, bonds, and other securities.
ETFs may typically grant investors with diversification by distributing the fund's money across multiple securities, which can help to balance risks.

While ETF shares are exchanged on a stock market, they are bought and sold just like stocks, incurring commissions and other expenses.
There are several ETFs, each with its own set of objectives, just as there are numerous mutual funds.

Some ETFs hold a mix of bonds and stocks.
Some monitor the performance of a stock index, such as the Dow Jones Industrial Average or the S&P 500, while others track the growth of a particular industry sector, such as technology or pharmaceuticals.

However, various ETFs provide varying degrees of diversification.
ETFs that specialize on individual sectors, for example, often provide less diversity than those meant to imitate an index.

Consider investing in an ETF as an example.
Assume an investor wishes to acquire a diversified investment that is intended to mimic the performance of a popular stock index, such as the S&P 500.

After examining various ETFs and selecting the one that best meets his objectives, he acquires shares of it through his broker, just as he would with an individual stock.

Now that he owns stock, the investor gets a stake in all of the fund's investments while only needing to buy one ETF.
Participating in a broad market with a single purchase rather than many transactions might save an investor's time on research and analysis.

So, how could an investor potentially earn a profit from the ETF?
He can make a return in two ways, just like a stock: growing ETF market price and dividends.

Whereas if the worth of the ETF's investments rises, so will its price.
If our investor bought a potential ETF at $50 and it sold for $65 a year later, he might make $15 per share by selling his stock.

Of course, if the ETF's price fell, our investor would also have lost money if he sold the investment at the lower price.
Since many ETFs are traded on a stock market, they may be purchased and sold at any time.

But not all ETFs are extensively traded, which can make filling orders challenging.

Now, think of a mutual fund.
The majority of mutual funds are priced and traded towards the end of the day.

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KEY MOMENTS IN THIS EPISODE
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00:00 Intro
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