5 Reasons Investing In ETF Can Benefit Your Business Portfolio
by Arina Smith Investing 24 April 2020
Ever since Exchange-traded funds (ETFs) were introduced in the market around 25 years ago, they have become an increasingly popular investment choice for both individual and institutional investors alike. This has resulted in the ETF market growing rapidly over the years, with the funds now covering a range of markets, sectors, and asset classes. Considering the numerous benefits they offer, ETFs are no longer too far behind the traditional managed funds competing for investor dollars.
In the last few years, investors have sought out some of the best ones in the market like ETF Sparplan. They realize that just like cryptocurrencies, these are assets that are going to grow in a major fashion over the next few years. Just like crypto, ETFs are becoming more mainstream with the passing of every single day. It has attracted not only interest from retail investors, but also institutional investors as well. Another good option is eToro which is a multi-asset broker. eToro trades over 200 ETFs so there are plenty of opportunities. The key is to identify ETF opportunities that are credible, promising, and expected to grow with time.
So, what are ETFs, and how can they benefit your business portfolio? Let’s find out.
WHAT ARE ETFs?
An ETF comprises a range of securities, which may include stocks, bonds, and other commodities that are listed on the stock exchange and traded just like stocks.
In recent months, etoro etf sparplan has become one of the most sought-after investments for both new and old investors. It promises great margins, credible security, and diversification of the asset portfolio. If someone wants to start trading and investing as a novice, ETFs are a great place to start.
ETFs are marketable securities, which means they have a price that allows them to be bought and sold quickly. Their prices fluctuate throughout the day as they are traded on the exchange.
An ETF can hold many different stocks from various industries, or it could be limited to one specific industry or sector. For instance, there may be technology-focused ETFs that include stocks of different businesses in that industry or commodity ETFs that focus on commodities like gold or crude oil. Some ETFs may focus on local offerings only, while others may trade in global securities.
REASONS TO INVEST IN ETFs
ETFs are the perfect addition to your business portfolio for several reasons:
Anyone who has experience in investment portfolios knows the importance of diversification in reducing the risk of fluctuations in the market. When you invest in an ETF, you are investing in a portfolio of various stocks and securities, instead of a single one. This diversification allows you to spread your risk as the ups and downs on different securities can easily balance out, providing stable returns.
You can further diversify by investing in ETFs that hold several varied investments, such as stocks from different industries or those that include stocks from both local and global businesses. When various securities are combined in a single portfolio, you automatically benefit from the diversification.
Many of the ETFs on the market publish information related to their holdings daily. This means you can find out which investments your ETF holds, the weighting of each investment in the overall fund, and how the ETF is changing its position with time. This transparency is not available with other investment options such as mutual funds. If you choose to invest in mutual funds, you can only get access to such information periodically. Moreover, since ETFs are traded on the exchange, you can easily find out their current market price. Having this information available about your ETF can help the business evaluate whether its chosen ETF is meeting its investment objectives and allow it to make any changes in its investment strategy in a timely manner or not.
Just like stocks, ETFs are traded throughout the day and quite frequently too. Their liquidity and high trading volume allow investors to get in and out as often as they want, which is a significant advantage compared to mutual funds, which are only traded once a day after the market closes. Prices of ETFs are continuously updated, giving the investor the flexibility to buy and sell whenever the time is right. They are traded just like equity on the stock market, despite the diversity they offer.
The process of trading in ETFs is simple. You can purchase a diverse group of investments in a single transaction. This is a lot simpler than having to buy dozens of securities individually and having to determine the best price of each. Moreover, investors can save money through this simplified purchasing process; since there is just one transaction taking place, you can avoid the commission fee payable when purchasing several different stocks for your portfolio.
Managing fees for EFTs is also lower than traditional mutual funds. This is because most EFTs are passively managed; they are required to track an index. It means only minor adjustments are needed compared to an actively managed fund where the fund manager must actively buy and sell stocks in an attempt to outperform the market. All of these factors combined make EFTs a cost-effective investment option to acquire, hold, and manage.
Many of the EFTs distribute dividends in the same way as normal stock; you get profits quarterly. This is different from mutual funds that do not make dividend payments as regularly; most mutual funds only pay dividends annually. This makes EFTs an excellent option for those looking for regular returns on their investment.
THE FINAL WORD
Whether you wish to diversify your investment portfolio, hedge risk, or invest in a particular market or industry, ETFs can help you achieve a number of your investment objectives. While equity, derivatives, and mutual funds all make substantial investments in their own right, ETFs are also an investment option you cannot ignore when setting up your investment portfolio. If you do, you will surely miss out.