Now that we know how to set up an account to invest in and a couple of different investing strategies we are going to dive deeper into a particularly useful financial product called an ETF.
Now you may have heard of an ETF and if you haven't that's totally fine in this article I'm going to cover everything related to an ETF to make you the most prepared investor you can be. First, we are going to start off with the essential question of what exactly is an ETF? Well, an ETF or exchange-traded fund is a type of investment vehicle that allows you to invest in a basket of assets in one go. Think of it like a single stock that owns a small piece of every company in a particular industry, sector, index, etc.
An example of this would be the S&P 500 ETF from SPDR (Ticker Symbol: SPY). This ETF holds a small piece of every company in the S&P 500 and buying it can be particularly helpful if you want to diversify your portfolio without having to go through the tedious effort of buying shares of every single company in the index. The great thing about ETFs is that they trade on stock exchanges and can be bought and sold just like regular stocks.
Now, what are the pros and cons of Investing in ETFs? Well, the pros are that they provide instant diversification at the push of a button and are great for investors who don't have time to check the market or trade on a frequent basis. Now some of the cons of investing in an ETF is that due to their diversification they may not go up as fast as one or two individual stocks inside the ETF since there may be other stocks dragging those individual returns down. Another con is that most ETFs provide very little in terms of dividends (If you are unsure about what dividends are I highly recommend you check out our article on the subject) compared to owning one or two individual stocks with a much higher dividend yield.
Overall, ETFs are a fantastic addition to any investment portfolio and are great for novice and complex investors alike for those wanting to build long-term wealth.
That was all in this FLC article! Stay tuned for more information! Make sure to subscribe for updates!
