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23 May 2022 00h00
Source: Banco Carregosa

ETF Guide for investors

ETF Guide for investors

 

 

Investing in ETFs helps investors diversify assets, maintain liquidity and access a wide variety of markets. Find out how to do it in this guide. 
 
Each time Apple's stock rises, it's not just its direct shareholders who celebrate. Across the world, investors in a wide variety of ETFs that incorporate the company's shares also win.  
 
Behind cryptic names such as Technology Select Sector SPDR Fund or Fidelity MSCI Information Technology Index ETF are some of the world's best-known companies, governments, industries, commodities, currencies and indices. For those who choose to invest in ETFs the aim is simple: diversify their investment and reduce risk. Find out what ETFs are and what you need to consider when investing in them. 
 
 

What are ETFs?  

 

ETF is an Anglo-Saxon acronym that stands for Exchange Traded Fund.
 
This type of fund replicates, for example, the performance of a specific stock market index (such as the S&P500), a particular industry sector (i.e. technology) or asset class (i.e. equities or bonds).
 
One of the main features of ETFs, and what distinguishes them from traditional investment funds, is that they can be traded directly on stock exchanges. This means that they can be bought and sold at a price that fluctuates throughout the day.
 
There are different types of ETFs:
 
• Bond ETFs - indexed to government bonds or bonds issued by large companies. 
 
• Index ETFs - track the performance of a specific sector such as technology, banking or the oil and gas sector. For example the SPDR S&P 500 ETF (SPY) tracks the performance of the S&P 500 index.
 
• Commodity ETFs - invest in assets essential to the functioning of the economy such as oil or gold. An example is the SPDR Gold ETF (GLD), which offers exposure to the performance of gold.
 
• Currency ETFs - invest in different currencies, such as the dollar or yen. 
 
To better understand how ETFs work, take the example of the SPDR S&P 500 Trust ETF, one of the best known and most popular ETFs in the market. Investing in this ETF means gaining exposure to the Standard & Poor's 500 Index which comprises shares of 500 large and mid-cap American companies. The S&P 500 is one of the main benchmarks of the US stock market and indicates the financial health and stability of the economy. By investing in this particular ETF, the investor gains access to a diversified basket of assets with a presence in various sectors such as technology, healthcare, industrials and real estate.
 
As this is an exchange traded fund, there is an associated price which allows it to be easily bought and sold. The ETF's share prices fluctuate throughout the day, unlike the other funds that check a single daily trade after the market closes. But this is not the only advantage of investing in ETFs. 

 

 

The advantages of investing in ETFs 

 

• Diversification: investing in ETFs is a way to diversify your portfolio. Through a single security it is possible to gain exposure to hundreds of different individual stocks. As we saw in the example above, the SPDR S&P 500 ETF (SPY) offers exposure to 500 different US stocks.
 
• Access to a wide range of markets: Investing in ETFs is also a way of gaining access to foreign markets, commodities or real estate. For example, those looking to gain exposure to Chinese stocks can invest in the iShares China Large-Cap ETF (FXI). 
 
• Transparency: the composition of ETFs is transparent. Unlike closed-end funds, investors can know exactly what an ETF holds. 
 
• Liquidity: because ETFs are traded on the stock market it is easy to buy and sell. It is possible to trade ETFs at any time during stock market trading hours.
 
• Low costs: ETFs tend to have lower costs than trading in non-exchange traded funds, which means they can be a more cost-effective way of investing. 
 
If  ETF investing is for you, find out what you need to do.
 
 

How to invest in ETFs  

 

To buy or sell an ETF you need the support of a brokerage firm or bank, or do so through a professional investment platform.
 
Banco Carregosa’s clients have several options to invest in ETFs. First, our managers work closely with their clients in their decision-making.  
 
Secondly, Banco Carregosa’s clients have access to a professional trading platform, GoBulling Pro, through which they can place buy and sell orders directly in the markets.   
 
Investing in ETFs is a solution for investors looking to diversify their positions without the complexity of having to trade a large quantity of securities. They can therefore gain exposure to an index, sector of activity or asset class. The complexity decreases and diversification increases. To start investing in ETFs talk to Banco Carregosa's team of experts, with decades of accumulated experience, or open an account and get started today with GoBulling Pro. Ready to get started? 
 
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