An exchange traded fund (or ETF) is a collection of assets (usually stocks) which is designed to match the performance of an index. For example, the most popular ETF in the United States, the SPDR S&P 500 ETF, is designed to match the performance of the S&P 500 index. Therefore, buying one unit of this fund is like buying little pieces of the 500 largest companies in America. This offers incredible diversification and most ETFs charge much lower fees than mutual funds. In addition, exchange traded funds can be purchased on the stock exchange just like any stock.
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Furthermore, ETFs can help you invest in many different countries, sectors and commodities. Some examples are as follows:
International ETFs such as the iShares MSCI Brazil Index (EWZ) are a collection of stocks of the largest companies in a particular country. These allow an investor to easily gain exposure to quickly growing economies from around the world.
Sector ETFs allow you to easily invest in a number of companies in a particular sector. For example, the S&P Global Energy Sector Index Fund (IXC) allows an investor to invest in many large energy companies at once.
In addition, if you are interested in purchasing gold, you could buy units of the SPDR Gold Trust (GLD) which tracks the price of gold. Using ETFs to buy commodities such as gold, silver or oil is an inexpensive way to profit as the price of these materials rises.
There are many other great reasons to invest in ETFs - check out the link below to learn more.
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