ETF Investing

What is Best ETF

Most investors have heard of ETFs, or Exchange Traded Funds. But which ETF is best? The short answer is it depends on your goals. By examining your financials goals you can figure out which ETF is best for you.

ETFs are mutual funds that trade like stocks. While standard mutual funds can only be bought or sold at market close, ETFs can be traded anytime during the trading day. ETFs can even be sold short, and some have put and call options associated with them. So ETFs offer the diversity of mutual funds, with the flexibility of stocks. ETFs have grown immensely in popularity and variety in recent years. All in all, they are a better choice than standard mutual funds for just about any investor.

The types of ETFs abound. There are some which track the major stock indices. Others track the markets of foreign countries. Some track certain financial sectors, for example, technology or finance. And some even track commodities, such as oil or gold.

ETFs can be used for all types and timeframes of trading and investing. If your goal is long-term investing, then just about any ETF that fits your goals can come into play. Generally speaking, however, you should stick to ETFs which are established and trade at a high volume. ETFs which trade at less than 100,000 shares a day should be avoided, as these thinly-traded ETFs can be harder to buy or sell and are somewhat volatile.

Fortunately, for every type of ETF there are usually multiple firms offering a version. So while one company’s version might trade thinly, another’s might trade more heavily. All else being equal, look around and choose the ETF with the higher trading volume.

ETFs are ideal for shorter-term trading. High volume ETFs trade instantaneously and so are excellent even for day traders. The fact is, ETFs work well in all timeframes.

More sophisticated investors might decide certain countries, sectors or commodities will outperform others. For those investors, ETFs that focus on those areas of interest would be the best choice.

For the average investor, however, seeking to follow a particular sector or foreign market is not usually desirable. Rather, selecting an ETF which tracks the broad market is generally a better idea. There are several market index ETFs, but for an ETF which tracks the overall broad market, it is hard to beat SPY, which tracks the 500 large cap companies of the S&P 500.

But there is another option offered in ETFs. That is leveraging. Leveraged ETFs, like standard ETFs, track a certain market, but offer performance double or even triple that of the underlying market. For example, the ProShares SSO ETF offers double the performance of the S&P 500. So if SPY goes up 5 percent, SSO will go up 10 percent. This leveraging cuts both ways, however. If the SPY goes down 5 percent, SSO will go down 10 percent. For an investor willing to take on more risk, however, leveraged ETFs can increase returns.

So getting back to our original question: Which ETF is best? Again it depends on your goals. But if your goal is simple, long-term investing in the stock market, the best ETF would be one that matches the overall stock market, is heavily traded, is well-established and has the advantage of having put and call options associated with it. SPY fits all those criteria. And if a leveraged fund is desired, ProShares SSO is a fine alternative.

Most investors have heard of ETFs, or Exchange Traded Funds. But which ETF is best? The short answer is it depends on your goals. By examining your financials goals you can figure out which ETF is best for you.

ETFs are mutual funds that trade like stocks. While standard mutual funds can only be bought or sold at market close, ETFs can be traded anytime during the trading day. ETFs can even be sold short, and some have put and call options associated with them. So ETFs offer the diversity of mutual funds, with the flexibility of stocks. ETFs have grown immensely in popularity and variety in recent years. All in all, they are a better choice than standard mutual funds for just about any investor.

The types of ETFs abound. There are some which track the major stock indices. Others track the markets of foreign countries. Some track certain financial sectors, for example, technology or finance. And some even track commodities, such as oil or gold.

ETFs can be used for all types and timeframes of trading and investing. If your goal is long-term investing, then just about any ETF that fits your goals can come into play. Generally speaking, however, you should stick to ETFs which are established and trade at a high volume. ETFs which trade at less than 100,000 shares a day should be avoided, as these thinly-traded ETFs can be harder to buy or sell and are somewhat volatile.

Fortunately, for every type of ETF there are usually multiple firms offering a version. So while one company’s version might trade thinly, another’s might trade more heavily. All else being equal, look around and choose the ETF with the higher trading volume.

ETFs are ideal for shorter-term trading. High volume ETFs trade instantaneously and so are excellent even for day traders. The fact is, ETFs work well in all timeframes.

More sophisticated investors might decide certain countries, sectors or commodities will outperform others. For those investors, ETFs that focus on those areas of interest would be the best choice.

For the average investor, however, seeking to follow a particular sector or foreign market is not usually desirable. Rather, selecting an ETF which tracks the broad market is generally a better idea. There are several market index ETFs, but for an ETF which tracks the overall broad market, it is hard to beat SPY, which tracks the 500 large cap companies of the S&P 500.

But there is another option offered in ETFs. That is leveraging. Leveraged ETFs, like standard ETFs, track a certain market, but offer performance double or even triple that of the underlying market. For example, the ProShares SSO ETF offers double the performance of the S&P 500. So if SPY goes up 5 percent, SSO will go up 10 percent. This leveraging cuts both ways, however. If the SPY goes down 5 percent, SSO will go down 10 percent. For an investor willing to take on more risk, however, leveraged ETFs can increase returns.

So getting back to our original question: Which ETF is best? Again it depends on your goals. But if your goal is simple, long-term investing in the stock market, the best ETF would be one that matches the overall stock market, is heavily traded, is well-established and has the advantage of having put and call options associated with it. SPY fits all those criteria. And if a leveraged fund is desired, ProShares SSO is a fine alternative.

 

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