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How Do I Invest in ETFs?

A Brief Introduction to Exchange Traded Funds or ETFs


Investing in ETFs in Your Portfolio

ETFs, or exchange traded funds, are a special type of security that trade just like stocks. An ETF can own stocks, bonds, commodities, or almost any other type of asset and trade throughout the day, fluctuating based upon supply and demand.

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An exchange traded fund, or ETF, is a basket of stocks, commodities, or currencies that resemble an index fund yet trade like a stock.  ETFs have become a quality choice for investors for a variety of reasons including their low cost of ownership and tax efficiency. 

Where Can I Buy ETFs?

ETF’s have become so popular that they are as common to brokerage firms as milk is to the corner store.  Any brokerage firm that deals in trading stocks will likely handle ETFs.  Due to investor appetites for these funds, more brokerage firms are putting together their own ETF’s, creating more choices for the investor.  For example, both Schwab and Vanguard have packaged their own ETFs and have made the trades in their proprietary ETFs free if you are a client of the firm.  Naturally, you do not have to buy a company’s own ETFs as there will be a wide offering available. 

How Do I Buy ETFs?

First, you will need to open a brokerage account if you do not already have one.  Either a traditional brokerage firm or online firm will be able to provide a platform for you to purchase ETFs.  If you need professional guidance, then a traditional brokerage firm may be a prudent choice, but this is often a more expensive route due to the higher commission structure.  If you prefer to do your own research, then a discount or online firm will suit you fine and you will usually pay less in fees or commissions.

Once your account is open and approved, you would purchase an ETF much like a stock.  An ETF purchase is different from a mutual fund purchase in that ETFs are traded on an exchange and the price fluctuates during the day.  A mutual fund purchase is made at the close of the day and everyone gets the same price that purchases on that day.

Like any investment decision, you should carefully consider the risks and benefits when comparing ETFs to other investment products.

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