00
Days
00
Hours
00
Minutes
00
Seconds
Sign up to our webinar! ‘Future Planning for your clients... AND charging for it’
Register Now

Exchange-traded funds (ETF) - definition and pros and cons

Read our introductory guide to exchange-traded funds, what they are, and pros and cons.

If you have tipped your toe in the world of investment funds, you might have come across what is called 'ETFs'. This stands for exchange-traded funds - these funds can be of interest to an investor because they combine the diversification potential of a mutual fund with the ease of stock trading. This is why we've compiled this short guide to ETFs and how they work.

Someone looking at exchange rate on their phone
If you have tipped your toe in the world of investment funds, you might have come across what is called 'ETFs'.

Exchange-traded funds - explained

ETF describes a bundle of assets traded on an exchange. As opposed to mutual funds, which are priced at the conclusion of a trading day, ETFs can be sold or bought throughout the course of the day (much like an individual stock). The ETF trading market is also quite versatile. The ETFs trade happens at different values, however, their fees tend to be at the lower end of the spectrum. For an ETF fund, the provider purchases a basket of underlying assets, (eg stocks, bonds, currencies, or commodities). Then, a unique tracker gets created for each basket, with their performance tracked by the ETF. The ETF provider is then free to sell shares to investors. These ETF investors then own shares of the actively managed ETFs they have bought shares of, however, not of the funds' but not its underlying assets. An exchange-traded fund (ETF) is traded for market-determined prices.

Exchange rates on phone and display
ETF describes a bundle of assets traded on an exchange.

Different ETFs

There is a number of different ETFs that might be worth considering. Here is a list of a few important types:

  • Bond ETFs - Bond ETFs do not have a maturity date and investors benefit from regular interest payments generated by individual bonds underlying the fund. This is a relatively low-risk investment option.
  • Stock ETFs - These investments consist of a basket of stocks and are less risky than individual company shares. This is a good long-term investment because it allows the investor to track their stocks over time.
  • Commodity ETFs - Some ETFs are based on underlying commodities rather than eg bonds. You can either invest in an ETF tracking the value of the physical commodities or one investing in companies that deal with the commodities.
ETF tracking
You can either invest in an ETF tracking the value of the physical commodities or one investing in companies that deal with the commodities.

Is ETF investment a good idea?

+

ETF investments allow you to diversify across a number of markets and industries. This process can be streamlined by investing in pre-diversified funds. ETF also has good transparency levels, traded on exchanges which makes them easy to track. The fund’s holdings are displayed publicly every day to help you track your funds.

-

Commission fees might incur when trading ETFs, as these funds are being traded on exchange, you might have to pay commission fees. ETFs also are not as liquid as other types of investment or assets. If market prices are fluctuating, getting rid of funds can be more difficult and stocks trading slow. ETFs can also close, forcing you to sell and potentially losing out.

Should I get into ETF trading?

If you are confident in the world of the stock exchange, ETFs can be an interesting option and an easy way to diversify. If you have invested in different funds, successful funds can balance out the loss in other funds so it can be a relatively low-risk way into the stock market.

Wall St street sign
If you are confident in the world of the stock exchange, ETFs can be an interesting option and an easy way to diversify.
Watch the Webinar Recording

Start Your Free Trial

Let informed predictions and powerful reporting guide your business. Be ahead of the curve with Futrli.

Get business advice here

Our blog holds tips, how to’s and general business advice.

Futrli News

Futrli's February 2024 Release

This is some text inside of a div block.

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat.

Futrli News

Futrli's February 2024 Release

Accountants

3 Apps to beat accounting blues and scale your firm

Chris Downing catches up with three accounting app innovators to discuss the apps that they have developed that directly help accountants.

Accountants

Where most prediction software falls short

Tread carefully when looking for prediction software. Find out how to dig deeper into your predictions with the tools that count.

Small Businesses

Cash is King! 4 ways to keep your cash flow healthy.

Cash flow is essential to your business’ survival. Read our top 4 tips for taking control of your cash flow.

Small Businesses

10 Common Cash Flow Forecast Hurdles

If there’s one thing that all small and medium-sized enterprises should prioritise, it’s their cash flow. Read on to find out the top 10 most common issues.

Accountants

Empowering Accountants: How to Embrace Uncertainty with Futrli

The future is far from certain. Find out how Futrli helps accountants wade their way through murky, grey, “This might happen”-type scenarios.

Small Businesses

Inflation affecting your hospitality business? Take back control with these three steps.

Acting quickly is key to ensure you can ride out the incoming storm. Find out more in this article.

Small Businesses

Why cash flow forecasting helps businesses survive downturns in trade

Learn how cash flow forecasting is crucial for surviving slower trading periods.

Accountants

The 7 reasons why SMEs struggle with cash flow management

Find out the 7 major reasons why your clients’ businesses struggle to achieve a positive, healthy, consistent cash flow.

Accountants

Take clients from compliance to scenario planning in five steps

Scenario planning helps your clients imagine different environments or realities in the future, guiding the plans and decisions your clients make.

Accountants

Flash reports and why to build them

This short guide covers what Flash Reports are and how you could use them as a speedy solution for your clients’ reporting needs.

Small Businesses

Head of Accounting and Futrli COO discuss challenges and solutions for small businesses.

Read Dan and Helen’s thoughts on how SMEs can protect themselves during what is set to be a challenging year.