What Is An ETF? & How Do I Invest In An ETF?

July 3, 2018

Happy early Independence Day! The first half of the year is in the books and I hope the first 6 months of 2018 were as enjoyable for you as they were for me. As my dad told me, I turned 100 in March, but I still feel like a young pup! That last article my dad wrote was far too technical, so I thought I would simplify it for everyone.

 

 

 

 

It seems that everybody and there mother are talking about ETFs, so what the heck are they? An ETF is an acronym for Exchange Traded Fund. Simply put, an ETF is a way to invest in a group of similar stocks. If you like internet companies, or healthcare companies, or global debt, or almost any other selection of similar stocks, you can likely find an ETF which covers that segment. One huge benefit to ETFs is that they are required to publish all of their holdings on their website each day. This allows investors to know exactly what they are buying and exactly what positions they hold at all times. 

 

Let's say you want to invest in Vice stocks. These are companies whose primary business is something "bad" like alcohol, tobacco, cannabis, etc. The AdvisorShares VICE ETF (symbol: ACT) holds positions in 35 US and international companies that operate in this space. Investors would chose to buy this ETF if they believe in the sector as a whole, but either do not know which company within the sector to pick, or believe that the whole sector will perform well. 

 

Once you know the ETF you wish to purchase, in this case ACT, you can set up an account at an online brokerage firm (TD Ameritrade, Fidelity, E*Trade). After depositing some money, you can purchase as many shares of ACT as you like. One share is currently approximately $25.00. 

 

Shares in an ETF trade like a stock. So you can buy and sell them all day long. Each brokerage firm charges their own rate for buys and sells which is typically less than $7.00. If you are just starting out, keep it simple, don't use options, don't sell short, in fact, don't even open an account with margin. Focus on buying the sectors you like, and once you reach your desired profit, sell them,.

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