WHAT IS AN ETF? Straight to the Point #STTP #117

In around two minutes you will know what is an ETF. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.

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ETF or an Exchange Traded Fund is a type of security that allows you to be diversified across different securities through only one investment.

Think about a basket with fruits and vegetables. In this basket you have bananas, onions, garlic, strawberries, apples and so on.

And now think about this basket as an investment portfolio. Every fruit represents different company. Bananas are Microsoft, onions are Tesla, garlic is Google, strawberries are Facebook, and apples are... well Apple.

All these fruits and vegetables are in the same basket, just like all these companies are in the same investment portfolio.

An instead of buying every fruit individually, you can just purchase the whole basket and be done with groceries.

Same thing with ETFs. Instead of investing in individual companies, you can just buy one ETF and be done with investments.

The biggest advantage of ETFs is that they allow you to be well diversified across different sectors and industries with just one investment.

Some people prefer investing exclusively in ETFs and not waste time picking individual companies.

And the reason for this is that statistically, passive ETF and index fund investing beats the majority of active traders in long term perspective.

Some index funds are ETFs, but not all ETFs are index funds.

And if you are not sure what an index fund means feel free to watch my previous video.

Long story short, index funds mimic financial market indices, such as S&P500, DJIA, or Russell 2000.

But ETFs can give you exposure to the whole stock market at once. With just one investment you will have thousands of companies in your portfolio.

Some ETFs can give you exposure to specific sectors, industries, countries, and even be investing in Socially Responsible Companies.

ETFs can include all kinds of securities. Including, but not limited to stocks, bonds, commodities, derivatives, and currencies.

If you want to invest in an ETF, you will need to buy its shares. Which are traded on the stock market just like regular shares. ETF share prices change based on demand and supply.

ETFs are either passively or actively managed. Because of this, investing in ETFs comes with a small fee. Which can be as low as 0.03% in annual fees.

If you find my content interesting, please consider subscribing to my channel. It helps a lot as a beginner creator. And let me know if there is anything you would like to know about personal finances and investing.

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