Exchange-Traded Funds For Dummies book cover

Exchange-Traded Funds For Dummies

Author:
Russell Wild
Published: December 2, 2021

Overview

Become an ETF expert with this up-to-date investment guide

Want to expand your portfolio beyond stocks and mutual funds? (Of course you do, you smart investor you.) Then take a look at exchange-traded funds (ETFs)! A cross between an index fund and a stock, they're transparent, easy to trade, and tax-efficient. They're also enticing because they consist of a bundle of assets (such as an index, sector, or commodity), so diversifying your portfolio is easy. You might have even seen them offered in your 401(k) or 529 college plan.

Exchange-Traded Funds For Dummies is your primer on ETFs. It gives you an insider (the legal kind!) perspective on the investment process, starting with an overview of ETFs and how they differ from stocks and mutual funds. The book also helps you measure risk and add on to your portfolio, and offers advice on how to avoid the mistakes even professionals sometimes make. Throughout, you'll also find plenty of tips, tricks, and even sample portfolios to set you up on the right path for investment success.

With Exchange-Traded Funds For Dummies, you will:

  • Find out exactly what exchange-traded funds are and why they make good investments
  • Mix and match stock portfolios to diversify yours
  • Go beyond stocks for maximum diversification: bonds, real estate, and commodity ETFs
  • Maintain your portfolio for future growth

With the tricks of the trade in Exchange-Traded Funds For Dummies, you can easily apply the knowledge you gain to turn good investments into great ones. Happy earning!

Become an ETF expert with this up-to-date investment guide

Want to expand your portfolio beyond stocks and mutual funds? (Of course you do, you smart investor you.) Then take a look at exchange-traded funds (ETFs)! A cross between an index fund and a stock, they're transparent, easy to trade, and tax-efficient. They're also enticing because they consist of a bundle of assets (such as an index, sector, or commodity), so diversifying your portfolio is easy. You might have even seen them offered in your 401(k) or 529 college plan.

Exchange-Traded Funds For Dummies is your primer on ETFs. It gives you an insider (the legal kind!) perspective on the investment process, starting with an overview of ETFs and how they differ from stocks and mutual funds. The book also helps you measure

risk and add on to your portfolio, and offers advice on how to avoid the mistakes even professionals sometimes make. Throughout, you'll also find plenty of tips, tricks, and even sample portfolios to set you up on the right path for investment success.

With Exchange-Traded Funds For Dummies, you will:

  • Find out exactly what exchange-traded funds are and why they make good investments
  • Mix and match stock portfolios to diversify yours
  • Go beyond stocks for maximum diversification: bonds, real estate, and commodity ETFs
  • Maintain your portfolio for future growth

With the tricks of the trade in Exchange-Traded Funds For Dummies, you can easily apply the knowledge you gain to turn good investments into great ones. Happy earning!

Exchange-Traded Funds For Dummies Cheat Sheet

An exchange-traded fund (ETF) is something of a cross between an index mutual fund and a stock. It’s like a mutual fund but has some key differences you’ll want to be sure you understand. Here, you discover how to get some ETFs into your portfolio, how to choose smart ETFs, and how ETFs differ from mutual funds.

Articles From The Book

185 results

Funds Articles

Basic Trade Choices for Exchange-Traded Funds

Buying and selling an exchange-traded fund (ETF) is just like buying and selling a stock; there really is no difference. Although you can trade in all sorts of ways, the vast majority of trades fall into these categories:

  • Market order: This is as simple as it gets. You place an order with your broker or online to buy, say, 100 shares of a certain ETF. Your order goes to the stock exchange, and you get the best available price.

  • Limit order: More exact than a market order, you place an order to buy, say, 100 shares of an ETF at $23 a share. That is the maximum price you will pay. If no sellers are willing to sell at $23 a share, your order will not go through.

    If you place a limit order to sell at $23, you’ll get your sale if someone is willing to pay that price. If not, there will be no sale. You can specify whether an order is good for the day or until canceled (if you don’t mind waiting to see if the market moves in your favor).

  • Stop-loss (or stop) order: Designed to protect you should the price of your ETF or stock take a tumble, a stop-loss order automatically becomes a market order if and when the price falls below a certain point (say, 10 percent below the current price).

    Stop-loss orders are used to limit investors’ exposure to a falling market, but they can (and often do) backfire, especially in very turbulent markets. Proceed with caution.

  • Short sale: You sell shares of an ETF that you have borrowed from the broker. If the price of the ETF then falls, you can buy replacement shares at a lower price and pocket the difference. If, however, the price rises, you are stuck holding a security that is worth less than its market price, so you pay the difference, which can sometimes be huge.

For more information on different kinds of trading options, see the
U.S. Securities and Exchange Commission discussion.

Funds Articles

Choosing the Best ETFs

With about 1,300 exchange-traded funds available, where do you start to shop? The answer depends on your objective. If you are looking to round out an existing portfolio of stocks or mutual funds, your ETFs should complement your existing investments. Your goal is always to have a well-diversified collection of investments. If you are starting to build a portfolio, you want to make sure to include stocks and bonds and to diversify within those two broad asset classes. There is not much in the world of stocks, bonds, and commodities that can’t be satisfied with ETFs. Keep the following guidelines in mind as you make selections:

  • Mix and match your holdings appropriately.

    You not only want a well-diversified portfolio, but you also want one that includes various asset classes that tend to go up and down in value at different times. There’s no point to holding four different ETFs that all invest in large cap stocks. Hold a large cap ETF and a small cap, a U.S. stock ETF and an international stock ETF.

  • Go for lowest cost.

    As with any other investment vehicle, be careful of paying more than you need to. Although most ETFs are very economical, some are more economical than others. You may not always want to pick the cheapest, but certainly aim in that direction.

  • Don’t sweat the small stuff.

    Two ETFs that track similar indexes (such as, say, large value stocks) are not going to be all that different from one another. Spend some time researching your options, but don’t agonize over your selection. Much more important — perhaps worth a little agony — is choosing ETFs that track dissimilar indexes so your eggs are in different baskets.

  • Go passive.

    A handful of ETFs promise “active management.” Know that active management has an awfully spotty track record. The bulk, if not all, of your ETF portfolio should be in passively managed (indexed) ETFs.

  • Look for breadth.

    Examine the holdings of the ETF. As a rule, no one security (such as, for example, Microsoft or General Electric stock) should represent more than 10 percent of the ETF’s total assets.

Funds Articles

Websites for Up-to-Date ETF Information

The world of exchange-traded funds changes rapidly. New products are added to the ETF roster almost daily, some of which are reasonably priced and track indexes that make good sense, and others of which are pricey, complicated, and potentially dangerous to the investor. You cannot assume that every ETF is a good product. Instead, always do your research before making any investment decision. How can you stay informed when the ETF market changes so rapidly? Checking in on the following websites is a great way to start:

  • Yahoo! Finance

    (http://finance.yahoo.com/etf) Features a search function with intimate details on individual funds, an ETF glossary, and regularly updated news and commentary.

  • Seeking Alpha

    (http://seekingalpha.com/dashboard/etfs) Features some the smartest commentary on fund investing you’ll find anywhere.

  • ETF Database

    (http://etfdb.com/)Boasts daily ETF news, educational articles, analysis, and an ETF screener. Find out which ETFs represent what asset classes for the lowest fees.

  • ETF Guide

    (http://www.etfguide.com/) A good, quick summary of the entire ETF world. Contains a complete listing of all ETFs available, along with ticker symbols.

  • ETF Trends

    (http://www.etftrends.com/) A gossip column of sorts for ETF enthusiasts. There’s chit chat about new ETFs on the market, ETFs pending approval of the SEC, behind-the-scenes industry workings, and rumors.

  • ETF Zone

    (http://www.etfzone.com/) An extremely convenient and quick way to get a scope on what’s available in the ETF world.

  • Index Universe

    (http://www.indexuniverse.com/) See “News” under the Sections heading for the most up-to-date information on ETFs and index mutual funds. See the “Data” section to help screen for ETFs of your liking.

  • Morningstar

    (http://www.morningstar.com/IntroPage.aspx) Click the ETF icon at the top of the screen. You can find thorough information on individual funds, along with Morningstar’s trademarked rating system. (One star is bad, five stars is grand.) See also http://etf.morningstar.com, which is the link to Morningstar’s ETFInvestor newsletter. It’s a paid publication, but there’s a fair amount of information that’s free.