Category: Exchange Traded Funds

Benefits of Investing in Index ETFs

What is an ETF?

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.

For more information, see my previous article on ETFs: Exchange-Traded Funds (ETFs).

Why Invest in Index ETFs?

An Index ETF is an ETF that tracks a specific stock market index, such as the NASDAQ 100, S&P 500, or Dow Jones Industrial Average. This means when you buy an index ETF, you gain exposure to all the stocks that comprise the index. For example, if you bought QQQ, the NASDAQ 100 index ETF, you would gain exposure to Google (GOOG), Apple (AAPL), Tesla (TSLA), CostCo (COST), and all the other stocks currently part of the NASDAQ 100 index.

The indexes are composed of a diverse set of stocks, so you automatically have exposure to various industries. If the index goes up, your index ETF will also go up. When a company in the index pays a dividend, your ETF will also pay a dividend.

Advantages to buying Index ETFs

There are a number of advantages and benefits to buying index ETFs. First, you are diversifying your holdings because the ETF is a basket of other stocks. You are also diversifying your risk exposure. A sharp decline of a single stock will not translate in to a sharp decline of the ETF because the other components in the ETF will decrease the loss and risk. If a stock in the ETF pays a dividend, you will receive a share of the dividend through the ETF. If the index the ETF tracks increases in value, your ETF will also increase in value.

Here is a break down the benefits of ETFs:

  • Diversification of stocks
  • Diversification of industries
  • Reduced risk
  • Dividend income
  • Top companies in the market
  • Tax efficient
  • Low expense ratios

List of U.S. Index ETFs

Here is a complete list of U.S. stock market index ETFs:

  • NASDAQ 100 Index: QQQ
  • NASDAQ Composite Index: ONEQ
  • S&P 500 Index: SPY, IVV, VOO
  • Dow Jones Industrial Average: DIA
  • Dow Jones U.S. Composite Index: IYY
  • Russell 2000 Index ETF List: IWM, VTWO
  • Russell 3000 Index ETF List: IWV, VTHR

Silver Exchange Traded Fund (ETF): SLV

Silver Exchange Traded Fund (ETF): SLV

Introducing the new silver exchange traded fund (ETF): SLV

You can get in on the hot commodities and precious metals actions without owning physical metals such as gold and silver coins. Exchange Traded Funds (ETFs) allow you to invest in commodities and precious metals, like Gold and Silver, and watch your ETF investment grow as the prices of gold, silver, and other commodities rise.

For those unfamiliar with Exchange Traded Funds, or ETFs, read my Exchange-Traded Funds – ETF on my Investing Winner blog. ETFs have many advantages and can benefit every stock trader and investor.

People have recently asked me about an exchange traded fund based on the price of Silver. One such silver ETF is the IShares Silver ETF, with ticker symbol SLV (ETF: SLV).

About the iShares silver trust etf:
Price: $138.12
Today’s Change:: +9.12 (+7.1%)

The SLV etf is sponsored by Barclay’s Global Investors and has been in the works for more than a year. Silver’s big brother gold also has an ETF in active trading, ticker symbol GLD.

Investors and traders alike have been waiting for the creation of the silver ETF. We can see their support and liking of the new SLV etf with the 7% jump in the price of the ETF, which was introduced on the stock markets on Friday, April 28, 2006.

Global investors are predicting both silver and gold will continue to rise even more than they have in the past year, due to concerns over Iran’s nuclear program, weakened dollar, gas and oil prices, and buying of precious metals by world banks.

SLV price quotes and charts

Exchange-Traded Funds – ETF

Exchange-Traded Funds, or ETF’s, combine investing and trading, giving you another tool for becoming a successful investor.

Exchange-Traded Funds – An Explanation: An Exchange-Traded Fund is a stock market security that generally tracks an index, such as NASDAQ, or a group of stocks. ETF’s are similar to mutual funds in that they are a collection of other stocks. This ETF collection of stocks allows you to diversify your money into numerous companies on the stock market by buying a single ETF stock. Exchange traded funds are traded on the markets like any other stock, such as Microsoft (NASDAQ: MSFT), or Anheuser-Busch (NYSE: BUD). You can buy and sell ETF’s as you please. You do not have to wait to buy or sell as in your standard mutual funds.

How ETF’s Work The price of an ETF share is calculated by the value of the individual stocks the ETF tracks. For example, the most popular and actively traded ETF is based on stocks in the NASDAQ 100 – symbol: QQQQ. By buying a share of QQQQ, you are indirectly buying a little piece of all the companies listed in the NASDAQ 100 list. This allows you to invest your money long term, pegged to the value and price of the largest, most popular NASDAQ companies. If the value of NASDAQ 100 as a whole increases, your QQQQ will also increase at the same rate. If NASDAQ 100 gains 1% in a day, then your share of QQQQ will also gain 1% in one day. The same is true for market declines, and you will lose money. The QQQQ allows you to buy a whole basket of stocks, diversifying your holdings across the 100 companies of NASDAQ 100.

Where to Buy and Sell Exchange Traded Funds: You can buy and sell exchange traded funds – ETF – exactly like any other stock market share. For online brokers, such as TD Ameritrade, E*Trade, or Scottrade, you would place your order for an ETF in the same way as your order for SIRI (Sirius Satellite Radio) or WAG (Walgreens). Every stock broker allows you to buy and sell exchange-traded funds.

What kinds of ETFs can I buy? There are over 150 different ETF stocks you can purchase, ranging from stock market indexes (example: QQQQ), to ETFs composed of specific sectors such as defense and aerospace or energy (example: PPA). ETFs also exist for precious metals, such as Gold (symbol: GLD), or Oil commodities (symbol: USO). Other ETFs may track stocks in foreign markets, such as China or India. You are almost guaranteed to find an ETF to suit your investment wants and needs. You just have to do a little digging and research to find the perfect exchange traded fund (ETF) for you.

Popular Exchange Traded Funds:

  • QQQQ – NASDAQ 100 ETF
  • SPDR (Spider) – S & P 500 Index ETF
  • GLD – Gold ETF
  • USO – U.S. Oil Fund ETF

Benefit of ETFs: ETFs have numerous benefits. Most mutual funds have a minimum investment, which can range from $500 or $1000 to $25,000 or more per fund. You must send your money to the mutual fund company, such as Vanguard or T Rowe Price, to purchase the fund. With ETFs, you can buy and sell as you see necessary, through your favorite stock market broker – I use TD Ameritrade. You can buy as little as 1 share, or you can buy thousands of shares of a single ETF, just like you can with stock market investments. Most importantly, your money is (usually!) diversified across a range of stocks – either broadly based such as stock market index ETFs, or focused in sectors such as mining or energy. In my research on Exchange Traded Funds, the most substantial gains come in longer term holding of the ETF stocks, generally speaking over 1 year. Also for stocks held over 1 year, you will end up paying less in capital gains taxes. That being said, there are many traders that regularly daytrade or swing trade ETF stocks, most notably the Nasdaq 100 ETF, QQQQ.

As always, thorough research is necessary for investing and trading anything, even ETF securities. Doing your Due Diligence is one facet of becoming a successful investor. You have the power to become an Investing Winner!