Investing In ETFs

ETFs or Exchange Traded Funds and similar to index fund and mutual funds in that they are invested in an index, commodity or basket of assets. The difference is that they trade like a stock on an exchange.

Investing in both individual stocks and mutual funds have their drawbacks. When you buy an individual stock, all of your investment dollars are riding on the company you invest in. One factor of successful portfolios is diversification and to obtain diversification investing in individual stocks is extremely expensive, it would cost tens of thousands of dollars to create a portfolio that held just one of each of the stocks in the S&P 500. Not to mention the amount of transaction fees you would rack up. The obvious alternative to this mutual funds and index funds.

Mutual funds on the other hand offer the diversity and balance needed for a successful portfolio and there are a wide range of funds that track the different indices, sectors and markets. Mutual funds do have their drawbacks though. Most mutual funds have a minimum investment, $2500 is not uncommon. Additionally, mutual funds carry expense ratios and fees that can take a huge chunk out of your earnings. Mutual funds are meant to be held long term and you don't have as many options as you would with individual stocks. On top of that the majority of actively manages mutual funds fail to beat their benchmark.

ETFs To The Rescue

ETFs offer the best of both worlds. You receive the automatic diversification that you would with a mutual fund but it behaves like a stock. This means that you can buy as little as one share. ETFs also have lower expense ratios than their mutual funds counterparts.Unlike mutual funds that are priced once daily, ETFs price fluctuates throughout the day just like a stock. Since ETFs behave like a stock, you have the option to short sell and buy on margin.

Additionally, there is an ETF for pretty much everything you can think of. The most common are Spiders (SPY) which tracks the S&P500, Diamonds (DIA) which tracks the Dow Jones Industrial Average and Cubes (QQQQ), which tracks Nasdaq 100. There a so many many more though for every index and every and sector. ETFs are also broken into categories such as large cap, small cap, growth, value, etc...There are also ETFs for bonds and fixed income and they too are categorized into everything from total bond market to short term bonds. There are even ETFs for commodities such as gold, oil and silver.

The only costs involved in purchasing ETFs are you're regular transaction fees. You can buy stocks free or at a low cost with either www.zecco.com or www.sharebuilder.com

Good luck and happy investing,
Finance Girl

Sharebuilder

If you want to invest money but can't meet the large account minimums that many brokers and mutual funds require you can open an account with Sharebuilder and put your money to work for you.

The beauty of Sharebuilder is that there are no minimums. No minimum balances, no minimum investment amounts and no minimum amount of transactions. You don't even have to buy a whole stock! If you have your eyes on a stock that's $100, you can buy 1/5 of a share for $20! For this reason Sharebuilder is perfect for beginner investors and those with modest resources.

Another plus is that, if you buy a security but find yourself too strapped for cash to invest any further for, say, the next 5 years you can rest assured that your money will grow untouched because Sharebuilder does not charge inactivity fees!

Now is a wonderful time to open an account because they are offering a 30 day free trial on their standard membership. Before the close of the trial period you can switch to the basic membership which has no monthy fee. Opening an account with Sharebuilder is easy, you don't even need to make a transaction on the same day you open the account you can schedule your transactions for any and as many times of the month as you please. Once you have filled out the simple application form you have a few choices. You can set up automatic monthy transactions or you can make one-time transactions with no obligation to make further ones within any timeframe or ever for that matter.

Sharebuilder also has several account type choices. One being the basic plan where you do not pay any monthy amount but you are charged $4 a transaction, ideal for the infrequent investor.
There are also other account types that charge a monthy fee but include several transactions (equaling a lower rate per transaction than the basic plan, you can also made additional transactions for $2 or less). These plans are great if you want to purchase several securities within a month.

The way it works is, Sharebuilder takes the funds out of your linked bank account the Monday immediately following your order, your order is then executed the next day, Tuesday. You can make any changes you want up until 5:00pm Monday. Though the service offers real-time trades, the kind of trades you will be doing (wisely chosen securities to be held long term) do not require them.

Diversification is a crucial aspect of any successful portfolio. This is why I urge you to select the free trial account type that includes 6 transactions and $2 thereafter. Transaction fees are based on each security purchased so when you take advantage of your free trial you can start with a diversified portfolio free!

Congratulations on making the first step to putting your money to work for you and building wealth! Check back for more investment and financial advice and thank you for reading!

Yours Truly,
Lianne