Beginners Guide | Exchange traded funds explained.



well some people don't like mutual funds there's a lot of restrictions they can be really complicated and let's not forget the high fees well this leads people to check out exchange-traded funds or ETFs the problem there is they're almost as complicated and there's like 1200 of them so how do you know where to start well lucky for you I'm a bit of an ETF nerd not so much a nerd I just like studying it well alright I'm a nerd the point is I'm not smart enough to use big words so today I'm going to talk about the differences between market ETFs and sector ETFs in layman's terms alright let's start with market ETFs or maybe you've heard of them as index ETFs same thing these will try to replicate an index of the market you know when you hear on the news that the Dow Jones Industrial Average lost 80 points today that's an index the sp500 is also another one that you may hear of along with the Nasdaq 100 and maybe even the Russell 2000 that's probably the fourth place one that gets talked about the least often those are all indexes basically these are just a summary of a bunch of stocks the Dow Jones Industrial Average is usually just a combination of 30 stocks the S&P 500 500 stocks the Russell 2000 2000 stocks now the problem is you can't actually invest in the Dow Jones or in the S&P 500 they're just a measurement if you will so if you wanted to invest in the S&P 500 you would have to go buy all 500 stocks and who has the money to do that well there's a bunch of ETFs that lets you participate in the index without actually having to go buy all those stocks for example the Dow Jones Industrial Average made up of 30 stocks rather than buying 30 different stocks you could just buy the ETF with the symbol dia and that'll let you participate in that same average at a fraction of the cost for the S&P 500 by far the most popular and original ETF is the SP why if you're looking at the Nasdaq 100 the most popular ETF for that one for some reason the symbol is QQQ and if you like the Russell 2000 and the most popular ETF to participate in 2000 stocks is i WM why these ETFs well to make it quite simple liquidity right if you're managing your own IRA or you got a guy doing it for you liquidity is the most important thing by far I mean you have to know that you can get in and out when you want you don't want to have to wait for someone to come along and buy the shares from you if you want out you want to get out just like that these four market ETFs literally have tens of millions if not hundreds of millions of shares that trade each day making them the most liquid market ETFs that you can trade okay so those are the market or index ETFs and now you have a few that you can look at next we have the sector ETFs this is really simple but for some reason my industry makes this really really complicated so let's dive in sector ETFs allow you to focus on one sector of the market so for instance if you were interested in only healthcare stocks well rather than go look up a bunch of healthcare stocks you could say let me just invest in the sector as a whole if you wanted to invest in tech stocks or banking stocks you can zoom in to those individual sectors rather than the whole market so why would you want to invest in a particular sector well diversification right it's that big boring word that financial advisors like to use but these sector ETFs allow you to diversify so that you're not all invested in one thing see if you bought the S&P 500 or you use the SP why to do that yes you would have a market ETF and technically you should be diversified however the SP 500 is made up of 33% financial stocks that's kind of a big chunk and you may not want that you may want a different sector to help kind of offset any potential risk in the financial sector so if you wanted to look at say health care then one of the popular ETFs for the healthcare sector is the X LV I don't know how they come up with these names but X LV is a healthcare sector ETF maybe you've looked at the sector ETFs and you said hey I want to have more financial stocks in my portfolio well if that's the case then the most popular ETF for financial stocks is the XLF that's the symbol XLF that will only focus on the financial stocks you can literally go to any sector that you want homebuilders let's say you wanted to invest in only home building stocks well the symbol for that is X H B and you could participate in just that not saying it's an actual investment you want to consider I don't know I'm just saying that you could zoom into that sector and only have home building stocks if that's what you wanted now there's one drawback to the sector ETFs they tend to be just a little bit more expensive you see ETFs charged what's called an expense ratio and the market ETF they're not usually very very high like the SP Y charges 0.11% no big deal now the sector ETFs are doing a little bit more of the heavy lifting focusing in and they realize that they're kind of zooming into a sector and really not broadening their horizons let's say it that way so because of that and because they're doing the work for you they tend to charge a little bit more now the fees are usually very very small anyways and are nothing compared to some of the mutual funds that are out there they also don't actually charge you individually see if ETFs have an expense ratio they just adjust the share price to reflect that so you never actually have to physically pay anybody or you never see money come out of your account and payable to an ETF they just adjust the share price along the way okay so that's a quick look at market ETFs and sector ETFs I hope you're still awake I know it's not exciting but there are actually quite a few more there's so many more sectors that you can look at and plenty of great ETFs for them now not all of our videos are this boring we focus on all kinds of different topics so head over to our YouTube channel or go to jazz Welkom and click on the helpful videos section up at the top if you'd like help managing your IRA or Roth IRA you're looking for somebody to do that for you I'm your guy just go to jazz Welkom click on invest now and I will personally follow up with you to make sure that we get your account open or transfer if I can be of any other assistance to you feel free to leave a comment send me an email or as always you can contact me directly

39 thoughts on “Beginners Guide | Exchange traded funds explained.

  1. Man, I don’t think I can afford your services but,love whenever I have questions about the basics you are there to break it down.

  2. "I'm not smart enough to use big words" Makes two of us brother. Great video! (Like the Mack the Knife too, much appreciated)

  3. I'm 28 and want to start investing long term on good assets. So I asked my dad and he told me to research ETF. I was like what the hell are those? lol This video explained it clearly. Thanks!

  4. gonna explain in layman terms
    proceeds to explain in non-laymen terms…
    and throw 1000 3 letter words to make us understand
    wow

  5. You're not boring. This was very useful information. By the way, I love the records on ther wall. It reminds me of my Groove Room. https://www.youtube.com/watch?v=rXgNCa_FXMI

  6. Can you please explain Commodity ETF especially Gold ETF. I have a question related to it if someone owns ETF Gold (backed by physical gold bullion) and wants additional units and comes to an Authorized Person (AP) then will he get ETF unit price as per the Secondary Market or the AP can be market maker itself and can quote some bid and ask. I will appreciate your response

  7. I can now wipe the Sweat from my forhead. Finally within minutes. I understand how ETF's work. Thanks to you. My mind is no longer swirling. Come to Riverside CA.Teach a class. I'll show. I wonder when I hear Financial Advisors explan the Market. If they really truly want you to make money. Not!
    Question? I have a Roth IRA. Easiest way to grow my IRA? PS: I'm 52 waited to long but hey. I'm focus now!

  8. so an etf is essentially a basket full of stocks from different companies? (depending on which etf you choose)

  9. Hey mate, I’ve been wanting to get into investing for a number of years. I have capital and the drive to make it work. But, I don’t know where to start? What program to use, how to purchase stocks or even where to get my toes wet. Please reply to my comment or email me at [email protected] I’d appreciate it. Thanks

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