An exchange traded fund, or ETF, is a basket of assets including stocks, bonds, commodities or currencies, where Investors can buy a share of that basket, just like buying shares of a company. With ETFS you get a chance to invest in lots of assets all at once, hence giving you the diversification benefits of mutual funds while mimicking the ease with which stocks are traded. Buyers and sellers trade the ETF throughout the day on an exchange, much like a stock, and ETFs often have lower fees than other types of funds. ETFs normally have a unique ticker.
NOTE: A ticker is a symbol, a unique combination of letters and numbers that represent a particular stock or security listed on an exchange. The symbol is used to refer to a specific stock, particularly during trading.
e.g., the ticker symbol for Apple Inc is AAPL. For Tesla Inc is TSLA.
Let us now look at a list of the top 10 global ETFs ranked based on Assets under Management.
| SYMBOL | NAME | Assets under management |
| SPY | SPDR S&P 500 ETF Trust | $356,371,000.00 |
| IVV | iShares Core S&P 500 ETF | $286,451,000.00 |
| VOO | Vanguard S&P 500 ETF | $259,020,000.00 |
| VTI | Vanguard Total Stock Market ETF | $252,083,000.00 |
| QQQ | Invesco QQQ Trust | $145,054,000.00 |
| VTV | Vanguard Value ETF | $100,849,000.00 |
| VEA | Vanguard FTSE Developed Markets ETF | $89,923,800.00 |
| BND | Vanguard Total Bond Market ETF | $79,684,300.00 |
| IEFA | iShares Core MSCI EAFE ETF | $79,541,000.00 |
| AGG | iShares Core U.S. Aggregate Bond ETF | $76,547,200.00 |
Let’s dive deeper and have a look at one of these ETFs. Ready?
SPDR S&P 500 ETF Trust (SPY)
This is one of the most popular ETFs that aims to track the performance of the Standard & Poor’s (S&P) 500 Index, which comprises of the 500 largest U.S. stocks. So basically, when you invest in this ETF, you get exposure to a basket of the largest 500 companies in the US. The S&P 500 serves as one of the main benchmarks of the U.S. equity market and indicates the financial health and stability of the economy.
NOTE: The price of a share of SPY is intended to be one-tenth that of the S&P 500 Index. So, if the S&P is at a level of 4,000, then one SPY share should trade at close to $400.
By investing in this ETF, some of the companies your portfolio is exposed to include:
| Holding (Company) | % SPY Portfolio Weight |
| Apple Inc. (AAPL) | 6.98% |
| Microsoft Corp. (MSFT) | 5.85% |
| Amazon.com Inc. (AMZN) | 3.39% |
| Tesla Inc. (TSLA) | 2.02% |
| Alphabet Inc. — Class A (GOOGL) | 1.93% |
| Alphabet Inc. — Class C (GOOG) | 1.74% |
| Berkshire Hathaway Inc. — Class B (BRK.B) | 1.58% |
| UnitedHealth Group Inc. (UNH) | 1.54% |
| Johnson & Johnson (JNJ) | 1.35% |
| Exxon Mobil (XOM) | 1.35% |
Why Should You Invest In ETFs?
If you are looking to invest in stocks but don’t have the time and research capabilities to choose the appropriate stocks for your portfolio, ETFs come in handy as a great option! This is called PASSIVE INVESTING. ETFs help you participate in the stock market with much more ease than investing in individual stocks. They offer greater diversification at a lower cost compared to direct stock investing.
Diversification
ETFs give you an efficient way to diversify your portfolio, without having to select individual stocks or bonds. When you buy an ETF, you are buying hundreds, or even thousands of different securities in one trade. This also allows investors to diversify across various industries. It would take a lot of money and effort to buy all the components of a particular asset basket, but with the click of a button, an ETF delivers those benefits to your portfolio. Diversification can help safeguard your portfolio against market volatility. If you invested in just one industry, and that industry had a really bad year, it’s likely your portfolio would have performed poorly too. By investing across different industries, company sizes, geographies and more, you give your portfolio more balance. Because ETFs are already well-diversified, you don’t have to worry about creating it within your portfolio.
Cost Efficient
ETFs are cost effective on many levels. If you had to go and buy all 500 stocks that made up the S&P 500 you would pay your broker a commission every time. These fees can quickly add up and take a toll on your return! ETFs allow you to buy all 500 shares in one go and only pay one brokerage fee – significantly reducing the cost of building a diversified portfolio.
Tax Benefits
Most ETFs only incur capital gains taxes when you decide to sell the investment. This means you’ll pay less tax on your ETF investment overall.
What are Some of the Cons?
Commissions
Typically, you’ll pay a commission when you buy or sell an ETF, just like any exchange-traded security.
Spreads
On top of commissions, investors also pay the “spread” when buying or selling ETFs. The spread is the difference between the higher price you pay to acquire a security and the lower price at which you can sell it.
Don’t forget: the wider the spread, the higher the cost.
Some ETFs are complicated
Certain ETFs may be more complex, based on their strategies or holdings.
Before investing in any ETF, you should carefully evaluate their features, risks, benefits and performance characteristics in comparison to your goals and expectations.
Frequently Asked Questions
Q. How can I invest in ETFs?
There are a variety of ways to invest in exchange traded funds, and how you do so largely comes down to preference. Investing in ETFs is but a few clicks away using the trading platform provided by the broker.
1. Open a brokerage account
If you’re ready to start investing in ETFs on your own, you’ll need to have a brokerage account to do so. After you open an account, you can invest in ETFs from there.
2. Find the ETFs you want to invest in
This isn’t as complicated as it sounds, but there are lots of ETFs on the market, and it can be tricky narrowing it down. You can use online screeners to help you find ETFs with low costs or ETFs in particular sectors such as the Energy sector which often performs really well during high inflation periods like 2022 – 2023.
3. Buy the ETF
Using your brokerage’s trading function, navigate to the particular ETF you’d like to buy and place the trade. Make sure you double-check your order before you make it official.
4. Hold onto the ETF
How long you hold onto an ETF will depend on your investment strategy, the longer you hold it the better. Because of the nature of compound interest, the longer you hang onto an ETF the longer your interest will be accruing interest.
If you have a long investment timeline, you’ll likely also be able to ride out the highs and lows of the stock market as it trends upward over time.
Q. Do ETFs pay dividends?
Yes, as long as the underlying stocks held within the ETF pay dividends. These companies’ dividends are collected by the ETF issuer and distributed to investors, typically quarterly, based on the number of shares the investor owns in the ETF. However, if none of the underlying companies in the ETF offer dividends, the ETF won’t pay dividends, either. Some ETFs are constructed specifically to maximize dividend income, these are known as Dividend ETFs.
Here is a list of the top 5 dividend ETFs, with the largest annual dividend yield
| Symbol | ETF name | Annual dividend yield |
| XLE | Energy Select Sector SPDR Fund | 3.75% |
| SCHD | Schwab US Dividend Equity ETF | 2.83% |
| VYM | Vanguard High Dividend Yield Index ETF | 2.69% |
| VXUS | Vanguard Total International Stock ETF | 2.46% |
| VEA | Vanguard FTSE Developed Markets ETF | 2.41% |
Q. Can you sell an ETF at any time?
Yes. Just like stocks, ETFs can be bought or sold at any time throughout the trading day (9:30 a.m. to 4 p.m. Eastern time), letting investors take advantage of intraday price fluctuations. This differs from mutual funds, which can only be purchased at the end of the trading day, for a price that is calculated after the market closes.
Bottom Line
ETFs are used by a wide variety of investors to build a portfolio or gain exposure to specific sectors. They are like stocks in the way they trade but can also be compared to more broad investments.
HAPPY TRADING!!!
Related:
Top 10 Highest Yielding Dividend Champions | Yields Up To 8.4%
