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Ask The Advisor - ETFs

Ask The Advisor - ETFs

March 07, 2024

ETFs

An exchange-traded fund (ETF) is a basket of investments, like stocks, bonds, or commodities, that trades on a stock exchange throughout the day just like an individual stock.

Structure:

A financial institution called the sponsor creates an ETF and fills it with a specific set of assets, following an index or strategy (e.g., large cap growth, technology stocks, or emerging markets). Shares of the ETF are then issued and traded on stock exchanges.

Trading:

You buy and sell ETF shares on an exchange just like you would with individual stocks. The price of the ETF fluctuates throughout the day based on investor supply and demand. Unlike mutual funds, which are priced once daily at the end of the trading day, ETFs offer real-time pricing and the ability to trade throughout market hours.

Benefits:

  • Diversification: Owning just one ETF can give you instant exposure to a variety of assets, reducing risk compared to holding individual stocks.
  • Lower Fees: ETFs typically have lower expense ratios (management fees) than actively managed mutual funds because most ETFs are passively managed.
  • Liquidity: You can easily buy and sell ETFs throughout the day, providing immediate access to your invested capital.
  • Transparency: You can view the underlying holdings of an ETF at any time, offering greater transparency than some mutual funds which offer monthly holdings breakdowns.
  • Tax Efficiency: ETFs may be better suited than mutual funds for tax sensitive investors.

Examples:

  • SPY: Tracks the S&P 500 index, providing exposure to a broad range of large US stocks.
  • AGG: Tracks the Bloomberg US Aggregate Bond Index, offering core exposure to US bonds.
  • GLD: Tracks the price of gold, providing a way to invest in the precious metal.
  • QQQ: Gives you access to a diverse group of cutting-edge Nasdaq-100 companies.

Things To Consider:

  • Underlying holdings: Research the specific assets within the ETF to ensure they align with your investment goals.
  • Fees: Compare expense ratios of different ETFs offering similar exposure.
  • Risks: Investing in any asset carries risks, including potential for loss.

In general ETFs are a valuable tool for diversifying your portfolio and achieving your long-term investment goals. Consult with your investment advisor about what financial products are suitable for your individual circumstances.

Important Information:

The views expressed in this publication are those of the author and do not necessarily reflect the views and opinions of Cetera Advisor LLC or Burrows Capital Advisors LLC. The information provided in this publication is for informational purposes only and is not intended as legal, financial, investment, tax, or professional advice. Nothing in this publication constitutes a solicitation, recommendation, endorsement, or offer by Burrows Capital Advisors LLC or any affiliated entities. This publication is based on research and analysis conducted under specific circumstances and may not be applicable to all situations. It is recommended that investors conduct their own analysis or seek professional advice before making any decisions based on the information provided in this publication. The authors and publisher do not guarantee the completeness or suitability of the information contained herein and disclaim any liability for any direct, indirect, or consequential loss or damages arising from the use of, reliance on, or interpretation of this information.

Exchange-traded funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other important information about the investment company. Prospectus can be obtained by calling 832-835-1950. Be sure to read prospectus carefully before deciding to invest.

Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results. Securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker/dealer and Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Burrows Capital Advisors, LLC, 2450 South Shore Blvd., Suite 220 League City, TX 77573.