Common investors have an opportunity to diversify their portfolios with exchange-traded funds (ETFs) and indexes. These two types of investing in the stock market have historically produced competitive results when compared with actively managed mutual funds.
Exchange-Traded Funds
ETFs are consolidated groups of stocks that trade on most exchanges as easily as stocks. They can be industry-specific – such as the SPDR Financials sector (XLF) – or reflect much more of the market, such as the S&P 500 ETF (SPY).
More liquid than mutual funds and charging virtually no management fees, ETFs are easy to buy for all investors. The S&P 500 is a good starting place for investing in stocks without investing experience. It also appeals to those who want to diversify across industry lines without buying individual shares from each company. For example, an investor interested in Berkshire Hathaway B, J.P. Morgan Chase, and Bank of America could invest in SPDR Financials.
Indexes
An index is a select group of stocks that measure their market performance. They are not equity in the selected companies but invest in a replication of the stocks to track movements. Indexes can represent a single sector or reflect a greater market, such as the Dow Jones Industrial Average. Investors interested in indexes can start with an experienced financial advisor who can actively manage a particular index portfolio that conforms to desired industries.
Getting Started
Indexes and ETFs like the S&P 500 also appeal to investors who don’t have the time to research and analyze a variety of stocks. These individuals may look to financial planners or wealth advisors for their expertise.
For investors looking for an easy way to diversify with market risk, investments like SPDR sectors are a familiar place to start. To get in touch with Tulsa financial advisors at First State Investment Advisors, contact us today at 918-492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.