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Rockey

Gold EFT Investment

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Hello, My name is Rockey. I am a freelance WordPress web developer. Recently, I have earned and saved some money. I want to invest this amount. But I am perplexed. I have listened that Exchange Traded Funds (EFTs) is a good option for investing. What is the procedure of EFTs investment? How can I invest?  

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Hi Rockey, the process for investing in an ETF is quite simple as all you need is to open an account with a broker who offers ETFs to its clients and then purchase the ETF through the broker.

The most liquid ETFs are those listed on New York exchanges, hence, you'll need to open an account with a broker who has access to them. I would recommend Interactive Brokers if you reside outside the US, especially in developing countries, as they are the only US broker who accept international clients from most countries including non-G20 nations.

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Hello Rockey,

When starting an investment, it is normal to feel confused about the best option. After all, it is your money you are placing at risk. Seeing that you have chosen to try Exchange Traded Funds, some necessary information can come in handy.

What are ETFs?

An ETF is a type of fund that contains assets like bonds, gold bullions, stocks etc. in their portfolio divided into shares which are held by shareholders. It is a collection of securities which are traded similarly with stocks.

Types of ETFs

There are several types of ETFs you can find in the market. Below are just a few you can consider in your investment plan.

Ø  Bonds. They can be corporate bonds, Government bonds, state and local bonds.

Ø  Industry. They are used to track the performance of sectors like the gold industry or oil.

Ø  Commodity. Deal with commodities like crude oil.

Ø  Inverse. They work strangely. It involves selling an ETF and expecting a drop in price and later repurchasing it at a lower price.

The benefits associated with ETFs are:

·         Lower Costs. This is because you don't have to par for mutual fund fees and expenses.

·         Trading flexibility. You can buy and sell at any point in a trading day.

·         Tax efficiency.

The Procedure Of Purchasing

The process is as simple.

1.   Open an Account With a Broker

The procedure for opening a brokerage account is as simple as opening a bank account. You identify a broker offering an ETF of your choice. You can find the best brokers here. Since you are just starting your journey, it is best if you went for a broker who offers Robo-Advisors. They will help you pick the best time to start trading and help you manage your risks until you feel that you can handle stuff on your own.

2.   Identify Potential ETFs and Compare using Screening Tools

Now that you have opened your account, the next step is to find ETFs and narrow down your options using screening tools. This will make it easier to pick the right one to trade.

Criteria used to narrow down your options:

Ø  Expense ration. Incurring a lot of expenses will cut on your profits. It would be best if you went for an ETF with low administrative costs.

Ø  Commissions. These are the fees charged on every transaction.

Ø  Trade volume. The volume will act as a measure of popularity to avoid scams.

Ø  Performance. Although we know that past performance does not guarantee you returns, it can be a useful tool when making a choice.

3.   Trade and Wait

This is the last step in purchasing ETFs. Buying here is just like buying stocks. You simply use tha ticker symbol- the distinct identifier. It would help if you familiarized yourself with the following words.

·         Price. It is determined by the bid and asks. A bid is a price a buyer is willing to pay while as is the minimum price a seller can accept.

·         Number of shares

·         Order type. There are four types of order types; namely, market order, limit order, stop order and stop-limit order.

·         Commission

·         Source of funds

By now, you have an idea of what ETFs are and how you can start investing. Here are some popular ETFs.

Ø  SPDR S&P 500

Ø  iShares Russel 2000

Ø  Invesco QQQ

Investing in ETFs is more relaxed but you don't get high returns. It is, therefore, reasonable to invest in bulk but also take precaution when trading.

 

 

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Hi Rockey, thanks for asking the question.

Exchange-Traded Funds (ETFs) are extremely popular among investors nowadays because they have very appealing expense ratios, and offer some benefits compared to traditional mutual funds.

The first step for trading ETFs is setting up a brokerage account. ETFs work like individual stocks because you can trade them only during trading hours.  

You can choose between various brokers today, depending on which you think will suit your needs. Some financial services companies such as Vanguard and Schwab have their own ETFs which you can trade without paying commission. Other brokers have agreements with third-party ETF providers under which they charge no commission fees when trading ETFs. You should probably do some research and see what each broker offers and then decide which one will work the best for you. 

Another thing to keep in mind when choosing which ETF to invest in is checking out their costs. There’s a great number of ETFs to choose from and every one of them publish their annual expense ratios. These ratios refer to the percentage of total fund assets that’s meant for covering the costs of the fund. Lower costs will save you some money and some of the most competent ETF providers have expense ratios lower than 0.1%.

It’s also a good idea to keep your ETF portfolio diversified. I recommend choosing ETFs that are in different categories like stocks, bonds, real estate, and so on. Increasing your exposure in every category is a good thing to do as well. With stocks, for example, different ETFs that have companies of various sizes and belong to different sectors will do you good in terms of risk management. 
 

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