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Investing in Exchange Traded Funds

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With so many investment strategies out there, it can be hard for businesses to decide which ones fit their needs. A popular investment strategy is ETF's or exchange traded funds. ETF's provide a diverse portfolio of stocks, bonds, and other smart investments. ETF's are index funds. Index funds match the index value, like the Dow Jones or NASDAQ. Whatever the performance is for the index, which will be what you will see from your index value. ETF's work a little differently because they only track a specific type of stock category. ETF's are used to invest overseas and in US stocks.

Brokers will do all the research for you with an ETF, which means you will need to pay them more money in commissions and sales. There are ETF's for just about every type of investment, even gold and oil. Private investors prefer ETF's because it is a low-cost option to stock investing. You also get to build a diverse portfolio without all the hassle of purchasing individual stocks and bonds. Unlike mutual funds, you get to have more control over your investment portfolio. This will help you manage the performance of this portfolio to fit your personal needs.

For example, let's say you recently were in a car accident and you have outstanding medical bills totaling $85,000. If you have this money invested, you can pull some of it out to pay for the medical costs. You can then change the way your portfolio is set up so you can earn this money again through your sound investment strategy. Having this type of flexibility with your investments can really help you out when you are in a bind.

Like every investment, you are taking on some risk with an ETF. However, the flexibility of an ETF seems to outweigh some of the bad things. OF course, the flexibility is the biggest pro of an ETF. Since the ETF's are listed on the exchange, you have the option to buy and sell as you please. This is just like owning regular stocks because you are trading for the current prices. The other benefit is that you can buy stocks on the margin and you can get them for lower costs, well below the costs that are being sold to mutual funds.

ETF's are also popular because of their tax benefits. Since the ETF's are being purchased and sold to other ETF investors, there are no taxable gains to pass on. This will save you a ton of money with capital gains taxes and other tax obligations.

So with all the positive things about an ETF, what could make them bad? The biggest problem with ETF's is that you must purchase them through a broker. We all know that brokers aren't exactly the most honest people out there and many of them will nickel and dime you out of a lot of money using hidden fees and other costs you may not have known existed. The broker fees are pretty expensive and you can lose a lot of money on your investments because of them.

Each time you make a trade or a sell, you need to pay the broker a fee. This fee could be upwards of 20 percent. If you are trading often, you will end up paying almost all of your earnings to brokerage fees. This means you need your investments to double before you should consider selling or trading them.

ETF's are great investment tools, but they are normally used by people that have a lot of money to invest. If you only want to invest a small amount of money, you should consider mutual fund investing. If you don't know what you are doing with an ETF, you could lose a ton of money.


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