Another year has gone by. Sure, you've spent a lot of money, but have you saved any? Before the clock strikes midnight, now is the time to plan for 2017. Where do you start? ETFs are a great way to help to simplify the investment process.
What is an ETF?
An ETF is an Exchange Traded Fund and represents a basket of stocks and other securities. ETFs have several advantages over buying and holding individual stocks such as diversification and ease of purchase. Most people have heard of the Dow Jones Industrial Average going up and down to reflect daily stock market performance, but there is an ETF that attempts to mimic the 30 stocks it contains. It is called the "DIA," and as of November 30, 2016, it is up 12.39% year to date. Of course past performance isn't any guarantee, but the Dow has been around for 100+ years and is thought to be the oldest continuing U.S. stock index. Current components include Apple, Boeing, Disney, McDonalds, Microsoft and Wal-Mart. If you use a Mac or like a Big Mac after a night out, this one may be for you. Why not support the home team?
Types of ETFs
Many ETFs have specific themes. For example, some focus on large capitalization stocks like the DIA and represent the biggest companies on the stock exchange. This portfolio includes many household names (IBM, Home Depot) and offers the protection a long track record. In addition, there are ETFs based on certain industry groups. Are you interested in leaders in healthcare? IBB has biotech giants Celgene and Biogen. Been on a train or received a package? IYT has transportation stocks such as Fedex and Union Pacific. With more than 1,500 ETFs available, you are likely to find one or more that match your interests.
Buying ETFs
ETFs are bought and sold every day on the stock exchange, so in order to purchase shares you will need to have a brokerage account. Opening an account isn't a big deal and can be done online through a low cost brokerage company such as TDAmeritrade.com in minutes. They also have very strong customer service so if you have any questions, they are available twenty-four hours a day for late night or weekend conversations.
Like any investment, you should take the time to review the fund information to make the best and most informed decision before committing your money. Investing can be both fun and lucrative over the long term, so perhaps now is the time to consider having your money start to work harder for you.