First let start off with what is an ETF. An ETF is an investment, that operates like a mutual fund. ETFs will track a sector or index and is a stock based investment of a collection of companies. The benefit to owning an ETF is a single EFT share is often comprised of multiple companies but your risk is limited to the sector or index.
For example, if you had a $1,000 and wanted to invest it, you could pick a single company and buy shares into that company. If you purchased an ETF like $VTI instead with that $1,000, you would instead own a little piece of 4,000+ companies. You re-coup greater rewards when you invest in individual companies, but the downside is their higher risks because of the lack of diversification. If you are new to investing index funds are a great way to simplify things and remove the researching and time needed to evaluate individual companies.
Even historically, individual investors have rarely outperformed the S&P 500 so as a general rule of thumbs, for most people outside of experts, it’s better results when you own the S&P 500 opposed to an individualized investment strategy.
These ETFs are our favorites and we’ll help you understand why:
VOO – Vanguard’s S&P 500 ETF, one the most popular ETFs out there. The reason we like this ETF is Vanguard has a low expense ratio.
VTI – This is a good way to own a share of every stock in the market, 4,000 companies.
QQQ – Investco’s QQQ, a piece of the NASDAQ top performing tech companies.