Exchange traded funds or ETFs: What are they and Is it worth investing in them
Good news! ETFs are now available on MonInvAI! Especially for this update we have prepared an article for you. In the article we will explain in simple words what ETFs are and why they are so attractive to investors.
ETFs are exchange traded funds. In such a fund the shares of companies are collected according to some specific features (for example, those companies that are connected with the sphere of IT, green energy or cybersecurity). Some investors supplement their portfolios with ETFs, while for others ETFs are the only kind of investments.
Let’s move on to the main question. Why would you invest in ETFs when you can buy just the shares of the companies? First of all, many foreign securities are very expensive. For example, one Amazon stock is worth more than $3,000. Therefore, in order to build a portfolio of such companies, significant costs are required.
Every investor has probably heard about the need to diversify their assets. In order to do this correctly, you need to follow the news and financial reports, as well as conduct technical analysis. That is, you need to find the most underestimated companies, but which may grow in the future. It is necessary to allocate the risks. It means that a certain stock must have a certain share in the portfolio. ETFs are used in order not to waste time and energy on the above. ETFs include different securities or other assets, so the funds are diversified, and they are constantly protected from price risks.
Of course, as in any other investment, investing in ETFs is accompanied by other types of risks. For example, market risk, interest rate risk and foreign exchange risk. It is important to understand and evaluate these risks. Investing in ETFs operates with calculated, reasonable risks.
If the ETF provider or the ETF itself is closed (this can happen), the investor will not lose money. Since the ETF has its own depository. In case of bankruptcy, ETF will transfer assets under the management of another company or sell securities on the market and pay the owners the funds due to them.
The most likely risk for ETF holders like for any investment instrument is a decrease in their value. If you constantly monitor the dynamics of fund prices, you will have to deal with this on a regular basis. The reason is that ETF repeats the index to which it is linked, and most indices, especially stock-based ones, “bounce” non-stop. The ratio of risk and return largely depends on the asset class of the ETF. It is important to choose the right ETF, and it is even better to make a balanced portfolio of different investment instruments.
Exchange traded funds, like other securities, can be bought and sold free during the trading session. But the main message of ETF is that it is a long-term investment tool. Most ETFs are indexed, that is, there is no point in trading ETFs in the short and medium term.
How to choose an ETF
The general recommendation for an investor when choosing an ETF is to choose the market and industry, that is well understood and interesting for him and for which he has expert forecasts.
But if the economic situation is unstable, even a familiar market may “storm”. In this case, it is most reasonable to choose an ETF on a stable asset.
Thus, an ETF is a convenient way to reduce risks and use many tools at the same time. You can get acquainted with ETFs on MonInvAI, which predicts the values of stocks and cryptocurrencies for the future period. Changes in quotations are used to evaluate ETFs. The platform is an example of the use of both technical analysis and fundamental, and on their basis – the introduction of artificial intelligence.
