ETF’s can be confusing for many people. I often get a blank stare if I talk about one of my favorites, like FXI. I know that I would have been in exactly that boat just a couple years ago, before I decided that being comfortably disengaged from finance was not working well.
An ETF is like a Mutual Fund Stock
That’s really the simplest way to think about them. Basically, they are like mutual funds in that you are investing in a “basket” of stocks. They are like a stock because you buy and sell them in units instead of whole-dollar amounts.
“Opportunity Investing adds that
Unlike mutual funds, and like stocks, SPDRs (and subsequest ETFs) are traded on various stock exchanges over the counter, the vast majority of trades conducted between investors rather than between investors and the organizations or spponsors that create ETFs.
In other words, ETF are usually traded in the open through a broker instead of by directly setting up an account with the fund itself.
In the next few posts, I’m going to explain some of the pros and cons of ETFs for small-time investors like myself. I am convinced that at least in my case they are an excellent vehicle for diversification, internationalization, and hedging. By the end of this series, I hope you will be able not only to skip the “blank look” I mention above, but more importantly you’ll be able to rationally consider using these powerful tools for your own investments.
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