Everyone wants to invest their money and one of the best places to do so is the Stock and ETF Markets. After all, that’s why it was invented. But what’s the best/safest/easiest way to do it? Do you buy individual stocks? What about an index? Should you consider mutual funds? It can get confusing, which is why utilizing ETFs may be the best investing strategy for your goals.
What is an ETF?
ETF stands for Exchange Traded Fund. It is a fund that tracks an index, but can be traded like a stock. ETFs always bundle together the securities that are in an index; they never track actively managed mutual fund portfolios (because most actively managed funds only disclose their holdings a few times a year, so the ETF would not know when to adjust its holdings most of the time). Investors can do just about anything with an ETF that they can do with a normal stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds). Their price will fluctuate from moment to moment, just like any other stock's price, and an investor will need a broker in order to purchase them, which means that he/she will have to pay a commission. On the plus side, ETFs are more tax-efficient than normal mutual funds, and since they track indexes they have very low operating and transaction costs associated with them. There are no sales loads or investment minimums required to purchase an ETF. The first ETF created was the Standard and Poor's Deposit Receipt (SPDR, pronounced "Spider") in 1993. SPDRs gave investors an easy way to track the S&P 500 without buying an index fund, and they soon become quite popular.
Should You Invest in the Market by Buying Stocks?
If you think an individual company has potential, then buying that company’s stock would be a good idea. However, if you wanted to invest in the stock market as a whole, you’d have to buy many stocks across many sectors. That can be a problem for many reasons.
1. Which stocks should you buy?
2. How many shares do you need of each stock?
3. How much will it cost in commissions and fees?
4. Is it risky to buy random stocks?
However, with an ETF, the amount of stocks and shares are prepackaged in one asset. There is only one transaction at one price. You don’t have to go chasing after stock prices, which can get difficult. With one call to your broker, you can have instant exposure to the stock market.
Another advantage of ETFs is that you can short the market even if you have a 401K or an IRA. If you can’t take advantage of the market when it goes down, you are only using half of its amazing potential!
Should You Invest in the Market with Mutual Funds?
Mutual funds are closer to ETFs than any other asset. They are also mini-portfolios created to follow and index or other investments. However, their goal is to not just act like the underlying index, but instead they try to beat it. While that’s not without its advantages, it can lead to higher transaction costs and risk. Stocks are traded in a mutual fund on a daily basis, sometimes without you even knowing. Fund managers sell and buy shares in your mutual fund all day long with the goal of trying to beat the market. Sometimes it works, sometimes it doesn’t. However all of those daily trades can rack up your commission bill.
Taxes play a huge role with mutual funds as well. If your manager sells a stock higher than he bought it, that is a capital gain. Uncle Sam wants his share of that gain right away. And sometimes you don’t even know about it right away. One of the disadvantages of mutual Funds is that they are not very transparent. You never know what’s in your fund, what trades are being made, or what are incurring capital gain taxes until you get a report.
With an ETF you don’t pay capital gain taxes until you sell the entire asset, you always know what’s in your fund, and there’s no daily management (with the exception of actively managed ETFs).
Should You Invest in the Market with ETFs?
Most definitely, YES! If you are looking for general exposure to the stock market without a high level of risk, costs, or complications, an ETF may be your best bet. It’s a simple investment product with minimal transaction costs, huge tax advantages, and many other benefits.
To aid you on your quest to investing in the emerging ETF market, visit http://fusiontradinglive.com. Learn to trade ETFs in the live trading market, that’s right LIVE! We take you by the hand to teach you step-by-step, from pre-market analysis to closing the trade and documenting the outcome in your exclusive trading journal; all during market hours. But we don’t stop there. Next we teach you discipline, patience and money management, without these it doesn’t matter what trading system you learn! This is the most extensive and complete course out there. Teaching you everything you need to know about trading, not just in one market but in the two largest markets in the world (Forex and ETF Markets) and if you can trade ETFs, you can easily take what you have learned and use it in the Stock Market...3 markets, 1 amazing system! This is the best training money can buy! I’ll see you in the Live Trading Room!!!
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