Do Exchange Traded Funds Belong in Your Investment Portfolio?

An Exchange Traded Fund (ETF) is a security that owns a basket of assets (like stocks or bonds), the ownership of which is divided into shares. It is often compared with a “mutual fund,” as a mutual fund is also a basket of assets. One of the main differences between the two, however, is that an ETF trades on an exchange (like the New York Stock Exchange) throughout the trading day. A regular (or “open end”) mutual fund, on the other hand, normally only trades once a day. All the investors in a mutual fund will get the same price when the fund trades at the end of the day.

Why do people invest in ETFs?

• Since the ETF encompasses many different assets divided into shares, it has built-in diversification. There are different types of ETFs specializing in different sectors, so you can choose the type of ETF that suits you.
• As ETFs are a marketable investment, they can be traded throughout the day.
• ETFs tend to cost less than mutual funds because they aren’t actively managed, and so their fees are lower.

What you need to know when considering an ETF

ETFs are not risk-free, as they are affected by market volatility. Moreover, if you own an ETF that holds stocks, you are exposed to the stock market. The fact that the ETF is diversified is in no way a guarantee of your principal.

If you’re considering an investment in any fund, be sure to read the prospectus before investing. For more information about ETFs, listen to a 9-minute podcast at: www.profile-financial.com/ETF