Most investors know how to answer the question "What is an ETF?" in a very basic way - but knowing all the details of what an exchange-traded fund offers can add a lot of value to your portfolio.
The simple definition of what an ETF is, according to Investopedia, is a basket of assets or a commodity that trades on a stock exchange. An ETF's price can change quite a bit on an intraday basis, depending on how much it is bought or sold each day.
But there's more to answering "what is an ETF" than that. How are ETFs traded? What makes them different from other investing vehicles? Are they better or worse than stocks, bonds, mutual funds, and other options?
Here's an in-depth look for investors to get a real grasp on exactly what ETFs are, their benefits, their weaknesses - plus a few ETFs for you to strengthen your portfolio today.
ETFs give investors the ability to invest with the right combination of diversification and focus to meet individual investing goals. They can choose a fund that follows:
Besides a tailored diversity and focus, there are several other advantages to using ETFs simply based on how they operate as investing tools. Here are a few:
Despite all the perks of ETF ownership, there are also a few disadvantages of which investors should take note...
Now that we can fully answer the question "what is an ETF," it's time to pick some of the best ones to invest in now.
With hundreds available, this can prove to be a tricky task.
Those who like to follow major exchanges should take a look at State Street Global Advisor's (SPDR) funds, such as SPDR S&P 500 ETF Trust (NYSE Arca: SPY), which corresponds to the price and yield performance of the S&P 500 Index, or SPDR Dow Jones Industrial Average ETF (NYSE Arca: DIA), which corresponds to the price and yields performance of the Dow Jones Industrial Average
If you want to explore foreign markets, possible choices might be Wisdomtree Pacific ex Japan High Yield ETF (NYSE Arca: AUSE), which follows the price and yield performance of the WisdomTree Australia Dividend Index, or the WisdomTree India Earnings Fund (NYSE Arca: EPI), which tracks the price and yield performance, before fees and expenses, of the WisdomTree India Earnings Index.
Even better, check out the latest investing advice from Money Morning Special Contributor Michael E. Lewitt - just last week, he highlighted two ETFs that are dominating broad emerging markets exposure.
And commodity investors can look to these key gold ETFs: SPDR Gold Trust (NYSE Arca: GLD) and iShares Gold Trust (NYSE Arca: IAU).
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