ETFs
What is an ETF?
An Exchange Traded Fund (ETF) is a collection of securities piled together that trade like one stock.
What is a Mutual Fund?
A mutual fund is an investment that brings multiple investors together to invest in a diverse portfolio of bonds, stocks, etc.
What is a bond fund?
A type of mutual fund or ETF that invests in bonds.
What is one pro of an ETF?
- Access to many stocks across various industries
- Less risky through diversification
- ETFs exist in targeted industries
- Cost-effective
- Flexibility
What is one pro of a Mutual Fund?
- Portfolio is professionally managed.
- Grants access to a professionally managed diversified portfolio to individual investors.
- Risk reduction
- Increased convenience
- Fair pricing
What is one advantage of bond funds over individual bonds?
Monthly income and easy diversification
What is one con of an ETF?
- Funds that are actively managed have higher fees
- Single-industry-focused ETFs limit diversification
What is one con of a Mutual Fund?
- Charges annual fees, expense ratios or commissions.
- Management abuses
- Tax inefficiency
- Poor trade execution
What happens to bond prices when interest rates rise?
They fall
What are three types of ETFs?
- Passive - Lower fees compared to actively managed ETFs.
- Bond - Funds that invest in a basket of bonds.
- Stock - SPY - Group of stocks bundled together
- Industry- ETFs focused on specific sectors and industries, such as energy, biotechnology, or chemicals
- Currency - BITU - Ex. Crypto ETF
- Inverse - SQQQ: Shorting ETF
- Leveraged - NVDU: Money multiplier
What are the two groups that manage the largest Mutual Funds?
Vanguard and Fidelity manage the largest mutual funds. Generally have limited risk unless the entire market drops.
Which type of bond fund is typically low risk with lower returns?
Government Bond Funds
What are two important factors to consider when buying an ETF?
- The underlying index or assets
- Expense ratio
- Performance History
About half of US households own what percentage of Mutual Funds? (+/- 5%)
By 2023, this percentage has increased to over half of US households owning 88% of all mutual fund assets.
What is the primary feature of municipal bond funds?
Their returns are often tax-free