What is an ETF?
Posted on Sunday, September 27th, 2009
There are many ways to invest and save for retirement, from ultra-conservative investments like treasuries and certificates of deposit to riskier investments like stocks and stock mutual funds. In the past couple of years exchange traded funds, or ETFs, have been gaining momentum and providing a realistic alternative to mutual funds. But just what is an ETF, and how can it help you save for retirement?
What is an ETF?
The term ETF stands for exchange traded fund, and it is essentially a basket of stocks – much like a mutual fund. When an investor buys an ETF he or she is actually buying a piece of all the stocks contained in that fund. Some of the best known and most widely traded funds are the Total Stock Market ETF, which trades under ticker symbol VTI, and the Standard and Poors 500 ETF, which trades as SPY. In Wall Street lingo these ETFs are known respectively as Vipers and Spiders.
What Kinds of ETFs are Available?
While ETFs began their lives as a low cost way for investors to buy shares in one of the major stock indexes, they quickly grew to encompass much more than the S&P 500, the Dow Jones and the total stock market. These days there are ETFs in just about any category you can name, including foreign ETFs that track either a single country or a group of countries, as well as ETFs that track the price of commodities like gold. In fact any investor considering buying gold as a hedge against inflation may want to track ticker symbol GLD, an ETF that rises and falls in value based on the price of gold.