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Understanding Exchange Traded Funds ETFs

Article Summary: A few years ago there were only a handful of Exchange Traded Funds. Today there are over 500 ETFs covering many different segments of both the domestic and foreign markets.

A few years ago there were only a handful of Exchange Traded Funds. Today there are over 500 ETFs covering many different segments of both the domestic and foreign markets. Understanding the differences in Exchange Traded Funds and Mutual Funds will help you in your long term investment strategy.

Exchange Traded Funds:
*Are listed on the various stock exchanges and trade just like a stock
*They are priced continuously throughout the trading day
*ETFs can be sold short
*You pay a commission when buying and selling just like when buying an individual stock.

ETFs offer all of the advantages of a mutual fund without some of the disadvantages:

Diversification:
A typical ETF will hold many individual stocks within its portfolio.

Professional Management:
ETFs are managed by highly professional investment specialist that make the buy and sell decisions for their individual ETF portfolios.

Economies of Scale:
ETFs take advantage of their size to minimize transaction cost associated with buying and selling individual stocks within their respective portfolios.

Advantages over Mutual Funds:
With ETFs there are no minimum holding periods and no early redemption fees.

Types of Exchange Traded Funds:
*Growth oriented (Smaller growth stocks)
*Value oriented (Large cap value stocks)
*Income oriented (Bond funds or dividend paying stocks)
*Specific country focused (China, Singapore, Germany, etc.)
*Regional focused (Latin America, Europe, Asia, etc)
*Foreign exchange (Forex related vs. the U.S. Dollar)
*Specific market segments (energy, healthcare, consumer products, etc.)
*Precious Metals (Gold, silver, etc.)

ETFs offer many advantages over investing in individual stocks:

*The most important advantage is diversification. With an ETF you hold a portfolio of many individual stocks rather than just one stock.

*With an individual stock you are exposed to the possibility that one of your stocks could be hit by bad news and plummet in price. It takes a long time to recover from one of these massive hits.

*With an ETF when one of the stocks in the portfolios is going down it is not at all unlikely that one or more of the other stocks in the portfolio are going up.

*Professional managers, with tremendous resources at their disposal, are managing the individual ETF portfolios. It is difficult, if not impossible for the individual investor to develop that level of sophistication and diversification when investing in individual stocks.

How to build an Exchange Traded Funds ETF Portfolio

*You could buy and hold a diverse number of individual ETFs. While this would give you good diversification there is a better way to invest in Exchange Traded Funds to maximize your return on investment.
*The preferred alternative is to follow a time-tested system for buying and selling a portfolio of ETFs.

Rebound Trading Systems

With so many diverse ETFs to choose from it is important to have a sound system for building a portfolio of Exchange Traded Funds. The Rebound trading systems I have developed consistently out-perform the S&P 500 by a wide margin. To learn more visit: http://www.reboundtrading.com.

Article Source: http://www.upublish.info

About the Author:
Gerry Wollert
Learn more about http://www.reboundtrading.com/understanding-etf.asp"> Exchange Traded Funds at: http://www.reboundtrading.com . Gerry Wollert was once listed in "Who's Who in America."