Why ETF Investing Has Become so Popular
February 3, 2018
After its start in 1993, ETFs have enjoyed steady popularity on the stock exchange. Furthermore, they have continued to acquire assets rapidly.
If you are new to ETFs, just imagine them as securities which you can trade like stocks. The fact that you can swap them is what makes them appealing. It is the main reason why many investors and active traders work hard to get them.
Trading like a stock – a valuable characteristic
While it may seem like it is just a bonus, trading ETFs like a stock is so much more than that. Unlike mutual funds, their price can jump during the day, and you can take advantage of that.
Mutual funds do not allow these speculative measures, but ETFs do have daily fluctuations. For example, you could buy an ETF at one price that is almost the same as the index. After a few hours, you can decide to sell it, and there is a chance of a profit there because the price spiked during the day.
And that is not all. Apart from allowing trade intraday, ETFs serve the investors well for speculative trading actions, like short selling. Moreover, the whole market appears as if it were just one single stock – which makes the investor’s job a lot easier.
At first, you might seem confused by the ETF popularity. However, once you realize how much money you are saving by using them, it all seems worth it in the end.
Firstly, they cost less, and they still have all the advantages of index funds like the low turnover. In terms of numbers, mutuals funds fees are between 0.01% and 10%, while ETFs go from 1.10% to 1.25%.
However, it does not mean that you do not have any expenses. You have to trade the ETFs through a brokerage firm, so you have to pay the commission. Nevertheless, if you want to avoid negating your profit, you could always try to find the low-cost ones, and invest in increments.
Furthermore, ETFs come in handy if you are looking to buy-and-hold larger investments.
What’s great about ETFs is that they help the investors create a fantastic portfolio. There are many of them available, and they cover all of the major indexes, as well as equity markets.
In addition to that, there are also international and regional ETFs, and specific ones for different industries (energy, technology, etc.)
Although there aren’t many opportunities for fixed income, it does not mean that you do not have options. You can easily find ETFs that contain different bonds – from long-term to short-term. In addition to that, you can get ETFs that pay dividends as well. However, you should check if they have any fees regarding the reinvestment of the dividends.
The whole purpose of investing in ETFs is that you are getting a valuable and versatile portfolio. That way, you could meet your specific asset needs quickly and efficiently.
Dodging the capital gains tax
Paying the capital gains tax can lower your profit severely, and that’s is where ETFs shine through. Their unique structure allows the investors to trade vast quantities of them for shares of stocks which they are tracking. That way, you can put off most taxes until you sell your investments. In addition to that, you can always pick the ETFs that pay dividends or the ones who lack the large capital gains distributions.
Once you add everything up, the popularity of ETFs is not surprising. The fees are low, and you can easily adapt the portfolios. On top of that, they are a way to make the investor more tax efficient.
However, if you are interested in just the passive management of the funds, you should stick to the traditional index mutual funds. That also applies to all those who regularly make somewhat small investments. Because the brokerage commissions can get quite expensive, ETF transactions are not the best option for investors who are still accumulating funds.
A Comprehensive Guide to ETFs
January 21, 2018
ETFs or exchange-traded funds are one of the most valuable securities on the stock market. Bought or sold through a brokerage firm, these products were created by individuals who started investing a few years ago.
They are actually baskets of securities which you can sell or buy through your broker. The point is to give you access to different markets, help the investor gain leverage, and even dodge short-term capital gains taxes.
Even though it all started in 1993, nowadays ETFs are known for their SPY symbol. In addition to that, there have been large investments in them, equal to about $1 trillion.
What kinds of ETFs exist?
- Market ETFs: they follow a specific index on the stock exchange.
- Bond ETFs: their main purpose is to expose the investor to all sorts of bonds.
- Sector and industry ETFs: the focus is on a particular area of work (oil, technology, etc.)
- Commodity ETFs: they follow goods like oil or gold.
- Style ETFs: they are interested in large-cap values or companies that have more room for growth.
- Foreign market ETFs: they follow the markets outside the United States of America.
- Inverse ETFs: in contrast to the other ones, they make a profit when there is a decline in value.
- Actively managed ETFs: the purpose is to beat the index, not track it.
- Exchange-traded notes: if a bank is creditworthy, it can release debt securities that give the investors a passage into illiquid markets.
- Alternative investment ETFs: they include a few newer structures and investment strategies.
How to work with ETFs?
ETFs work similarly to stock, but there is a significant difference. Unlike other company stocks, the quantity of shares changes every day through creation or redemption.
As far as the investors go, they are usually individuals, and they have a role to play when it comes to the liquidity and integrity of the ETF. Furthermore, they are the main part of creation units acquisition and purchase.
You can trade baskets of underlying securities for ETF shares. However, if the price goes down, the investors and the creation units utilize an arbitrage mechanism that brings it back up.
Why do people like ETFs?
- You can acquire them or sell them any time.
- The fees are lower, meaning that there is no sales load. However, you would have to pay the brokerage commission.
- They help with the capital gains tax payments – investors have more control over it.
- Unlike mutual funds, investors can place a number of different orders with their broker.
Is there anything you should worry about?
- The trading costs are a bit higher.
- You can buy some ETFs for more money, but if they have a large bid/ask spread, you would have to sell at a loss.
- Technical issues can always happen.
- It takes about three days for the ETF sales to settle. You cannot use the funds in the meantime.
How do you invest in ETFs?
The whole point of the ETFs is to give you the exposure you want. Whether that means that you can gain access to the foreign market, or a particular industry sector – ETFs make it possible.
When it comes to investing, you can go the traditional route and invest what you have in the stock index and bond ETFs. Afterward, you can slowly add in the commodities such as gold.
ETFs allow you to quickly and freely move between the markets, so there are opportunities to grab shorter term swings.
How does the future of ETFs look?
The future is bright when it comes to ETFs. They are bound to become even more popular in the next few years. However, even though the innovative aspect might intrigue investors, proper research is a must. Some of them are just not as valuable as you might think, so you should tread carefully if you plan to invest in them.
What are Candlestick Charts?
March 16, 2017
Candlestick Charts are also well known by the name Japanese Candlestick Charts. This type of chart is used to represent financial data and its movements. Visual representation provided by the candlestick pattern is easy to understand for analysis and better decision making purpose.
While creating a candlestick chart data about the prices high, low, open and close are necessary for the financial purpose. High and low are presented by the lines. Stock can close when they have high or low value.
If a stock is closed with the low value then the opening value it is represented by filling the body of a chart. If it’s opposite than the body part of candlestick will not be shaded. The body of the candle chart can be shorter or longer in size. The longer candle there is it means that there is more movement in stock and the value could be increasing or decreasing depending if it’s shaded or unshaded. So if the body part is unshaded then its good time to buy the stock since it’s cheaper at that time. But if the body part is shaded then the price has increased its time to sell the stock and it will help financially.
Most used Candlestick Chart Patterns
- Shooting star
- Blending Candlesticks
Formation of Doji occurs when the open value and the close value equal to each other. It’s hard to determine if the stock should be sold or to buy more with Doji Chart Pattern. Doji pattern is of various types such as Long-legged Doji, Dragonfly Doji, Tombstone Doji and Gravestone Doji. When Harami pattern is shown in a chart it represents that on the first day of stock market. The pressure is high for both the sellers and buyers. It is used when each day the prices are going to be increasing. Hammer formation and shooting star formations are similar to each other but little bit of opposite kinds. The shooting star always points upwards while the hammer points downwards. But both provide information that helps in selling the stock.
The Blending candlesticks are formed with uniting of candles with each other so they are blended together. Basically, the pattern has more than one candle used in this candlestick pattern. With the blending candles the opening, closing and high and low values exist same as other types of patterns is representing. But with the blending of candlesticks pattern, it also requires the open value of first candle and close value of the last candle in blended candlesticks. Blended candles are represented by the visual representation of hammer, shooting star, and other candlestick patterns as well. In blending candlesticks there could be a use of more than just two candles in forming the pattern of blending candlesticks.
Candlesticks are being used for many years now. A way of representing financial movements is easier to understand with candlestick charts. Each candlestick in the chart only shows the change in movement of a single day. So each day in a month a new candle formation takes place on the chart to compare everyday stock market details. The method of using candlestick charts is easier and better way for anyone to use. With its visual representation, the chart helps make decisions of selling and buying stock easier.