Exchange Traded Funds (ETF'S) consist of a basket
of stocks or bonds that are formulated to track an index.
Exchange Traded Funds ETF's are:
| 1. |
TAX
EFFICIENT- unlike mutual funds ETF's do not have to sell
shares to meet redemptions.
|
| 2. |
LOWER EXPENSES
- again no shareholder redemptions to worry about and no management
fees like mutual funds.
|
| 3. |
PROTECTIONS
- Buy and Sell stop and limit orders to enter and exit positions.
No down tick rules.
|
| 4. |
LIQUIDITY
- all day trading, charting, and tracking.
|
| 5. |
DIVERSIFICATION
- an inherently diversified product which when combined with
other etf products greatly reduces risk in a well balanced portfolio
with limited expense.
|
| 6. |
DIVIDENDS
- Dividends paid by a stock or bond held in an etf are past
on to the etf holder after expenses. |
ETF's and Risk
Even though ETF's are inherently diversified, they
do have risks associated with the performance of the underlying
index the etf is tracking. For example, if the DJIA index declines
20% and you are invested in Diamonds (DIA) you stand to lose 20%.
Conversely, if the DJIA index rises by 20% and you are invested
in Diamonds (DIA) you will make 20%.
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