Why Invest in an ETF?
If you are new to investing in stocks or commodities, the various ways of investing can be confusing. Even seasoned stock and commodity traders have problems matching the performance of indexes. Fees for investing in individual stocks and mutual funds often wipe out a good portion of daily earnings.
Some other options circumvent these problems. An alternative is trading in ETFs or Ag ETFs. An ETF is traded like an individual stock, on an exchange. Like Mutual Funds, ETFs are made up of a basket of investments that can be securities or commodities.
An ETF that invests in commodities is an Ag ETF. One reason for using commodities is that commodities are considered “hard assets”. They have a better chance of being a successful hedge against inflation.
ETFs are traded throughout the day and usually track very close to a market index. For securities ETFs, that means tracking one of the main indexes, like the S&P 500. For Ag ETFs, it could mean tracking on of the agricultural commodities indexes.
There are pros and cons for investing in any type of ETF. For new investors or those with limited funds to start with, the benefits far outweigh the cons. For individuals investing, it is quite difficult to beat any market index when buying individual stocks or commodities. The same is true for investing in actively managed mutual funds.
Benefits of ETF and Ag ETF Investing.
The benefit of a mutual fund over investing in separate stocks or commodities is diversification. An ETF has that same benefit.
The benefit of ETFinvesting versus actively traded mutual funds is that any actively traded mutual fund is not much different from an individual investor as it is not indexed. Being indexed, ensures an ETF will, on average, out perform any actively traded mutual fund.
Any type of ETF that is indexed has the benefits of diversification plus the stability for a new investor of following an index. There are other benefits too.
• The costs of investing in an ETF or Ag ETF are less because actively managed mutual funds have management fees that often reach 2%. That is high compared to the average ETF costs that are typically under 1%.
• ETFs can be bought and sold in one share increments which is much better than mutual fund minimum investment amounts.
• ETFs have lower exposure to tax because they have less turnover than actively managed mutual funds.
• ETFs allow flexibility in trading due to being priced throughout the day. Mutual funds are priced once per day.
Additionally, actively traded mutual funds do not report daily the stocks in which they have invested. Any ETF investment is transparent about what securities or commodities make up the fund. The information in this article should have provided you with insight for good reasons to choose ETF or Ag ETF as your investment vehicle.