ETFs may sound like aliens from the “Star Wars” movies. But they’re actually an increasingly popular investment that offers several potential benefits to investors. The acronym stands for exchange-traded fund. We utilize ETFs to complement our strategies in the portfolios.
ETFs are securities that normally track an index, such as the well-known Standard & Poor’s (S&P) 500. They are traded on a public stock exchange, so prices fluctuate throughout each trading day. Because of this liquidity, and the fact that fees associated with the investment are typically lower, more investors are opting for ETFs.
Technically, the ETF owns underlying assets-such as stocks, bonds, commodities, or foreign currencies – and this ownership is divided into shares for investors. Therefore, you own the ETF’s investments indirectly and your shares represent their market value.
What’s more, ETFs let you diversify across a wide range of underlying investments, while providing investors with other advantages. Also, taxable gains aren’t generally passed through to shareholders, although you will be taxed on any gains under the usual rules when you sell an ETF.
We are happy to discuss how we utilize ETFs in your portfolio and how they benefit you.
Kim Scott, CFP®
DIRECTOR OF Financial PLANNING