The Benefits of Exchange Traded Funds for Your Investment Portfolio

June 21, 2018
1127 Views

Exchange Traded Funds, better known as ETFs, are competitive investment products that can help you to increase your exposure through diversification. The result is stable investments with moderate returns. If you are looking for an uncomplicated way to expand your portfolio, then ETFs are worth a closer look.

What is an Exchange Traded Fund

An ETF is a pooled fund of unique stocks and bonds that are sold as a single product. Similar in some ways to mutual funds, ETFs are more suitable for DIY investment because they are more affordable and traded directly through a stock brokerage.

Because ETFs are diversified with tens, hundreds, or even thousands of unique stocks and bonds, they can give you wide market exposure with less risk than trading stocks individually.

What are the Key Benefits of Holding Exchange Traded Funds?

ETFs are designed for long term investment and are more suited for stable returns rather than quick gains.

Investing in the stock market can be complicated when you manage each stock individually. Staying abreast of price changes, industry news, and company performance can be time consuming and it’s easy to miss opportunities or even signals that could cause you to lose money. With an ETF you get maximum exposure, but you only need to track a single fund. Think of it like investing in a single stock but with far more security.

ETFs can be much more affordable for DIY investors, because you can lower or eliminate your commission fees. Companies like Vanguard, Oppenheimer Funds, and TD Ameritrade all offer low or zero commission brokerage accounts.

Great for Near-Passive Investment but You Still Need to Maintain Some Involvement

By investing in one or more ETFs you can create a mostly passive income without the need to constantly track changes in the stock market. With a few minutes of research every week (or every day if you have the time), you can easily track any movement on the ETFs that you’re invested in.

The inherent diversification of an exchange traded fund can mean long term gains when selling, and reasonable dividends for mid to large sized investments. As an example, the Vanguard Total Stock Market ETF (NYSE: VTI) pays a dividend of $.57 per share and has grown from a value of $38 per share in early 2009, to $144 per share today.

Long term stable dividends and an increased sell price in the future mean that most ETF products are perfect when you want to create passive income for savings, reinvesting, or a retirement fund.

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