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What are Exchange Traded Funds? A Short Introduction to ETFs

We hear the name “ETF” floated around a lot in the financial world. However, most people don’t know exactly what an ETF (Exchange Traded Fund) is or how it works? Are they buy fast, sell fast stocks? Lets take a closer look.

What are ETFs (Exchange Traded Funds)?

ETFs are certain funds that track the indexes of the NASDAQ-100 Index, S&P 500, Dow Jones, and more. When you invest in an ETF, you are actually buying shares of a certain portfolio, that will track the yield and return of the selected (also known as “native”) index.

Is it starting to make sense yet? If you are still a bit confused that is fine, as ETFs can be perplexing for first timers. Here is another way to look at how ETFs work:

An ETF is actually something that does not try to “outperform” the index that it is tracking. It doesn’t want to “beat” the index, it wants to actually tie itself to the selected index and be that index.

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It may still be a little confusing so lets take a quick look at some of the benefits of Exchange Traded Funds.

ETF Benefits

There are several great benefits to buying ETFs. They allow you to take a diversified portfolio, and combine that together with trading a simple, singular stock. They also carry a number of benefits over investing in mutual funds. You can purchase ETF shares a few different ways including:

  • Margin
  • Short Sell Shares
  • Hold for Long Term

Getting invested in the right ETFs is a fantastic way to build your portfolio. Sit down with your personal financial specialist, and go over all the pros and cons of getting involved in the world of Exchange Traded Funds to maximize your success. It is definitely worth your time, and can be very beneficial for you if handled correctly.