Exchange-Traded Funds in the New Investment Age and What You Ought to Know 

The investment world is increasingly growing sensitive necessitating the grasp of new knowledge on how to make money work for you. Financial markets provide a wide array of opportunities that remain untapped by a vast majority. Notably, there are various determinate reasons that challenge the uptake of solutions provided by relevant financial institutions. Fortunate enough the growth of financial markets knowledge across different demographics however slow signals potential market penetration of financial markets investment instruments.

Exchange-Traded Funds (ETFs) are an example of lucrative investment opportunities in the realm of the financial market. ETFs provide opportunities to invest in a basket of asset classes that give room for diversification and minimizing risk. The asset classes include commodities, stocks, bonds, blockchain, and currencies. An ETF can be industry-specific or spread across different industries. An industry-specific ETF could be concentrated on technology companies while the latter could be spread across automobile, technology, and pharma.

Actively Managed ETFs are considered more expensive than Passively Managed ones. Actively Managed ETFs require fund managers’ frequent involvement in buying and selling of the inherent asset classes and ensure seamless fund holdings within their ETFs. Counteractively, passively managed ETFs trail an already existing index such as the NASDAQ or S&P 500 and require minimal buy and sell analysis as well as monitoring. Resultantly, actively managed ETF’s end up more expensive than passively managed ones due to high management costs hence a higher expense ratio.

Pros

a) Portfolio diversification hence minimizing risks and optimizing returns.

b) Low brokerage fees and commissions on buying a basket of asset classes compared to buying separate asset classes such as individual stocks with different fees and commissions.

c) The liberty to concentrate a portfolio on one industry such as Tech Stocks.

Cons

a) Concentration on a specific industry limits diversification.

b) Reduced liquidity due to a decrease of available tradable ETF’s limits transactions.

c) High fees in Actively Managed ETFs.

Dividends and Taxes

Always strive to know whether or not the ETF you want to invest in distributes dividends. · Inquire on taxes levied on your earnings and choose your best fit that offers sound value on your investment capital.

Examples of Exchange Traded Funds:

USA – Vanguard’s Mortgage Backed Securities ETF (VMBS)

UK – Franklin FTSE United Kingdom ETF (FLGB)

China – KraneShares CSI China Internet ETF (KWEB)

Japan – Amplify Transformational Data Sharing ETF (BLOK)

South Africa – iShares MSCI South Africa ETF (EZA)

Kenya – Absa New Gold ETF (GLD)