Not sure what ETF to buy now to help you build a strong portfolio? There are certainly a lot to choose from, and there’s no right answer for every investor.
The first ETFs appeared in the stock market in the early 1990s. These funds have evolved and changed a lot over the past few decades, so much so that there are significant differences between some of the ETFs on the market. Knowing the differences among these ETFs will help you choose the fund that fits your investing life the best.
Learn the nuances between traditional ETFs and “new” ETFs to help you determine what ETF to buy now for your portfolio
When ETFs first hit the market, they were set up for long-term investment success through passive management and lower management expense ratios (MERs) than comparable mutual funds. However, this changed over the years. Many traditional ETFs are still designed in this cheaper, passively-managed way, but some “new” ETFs have developed over the years as well.
New ETFs may focus on mimicking indices that are much narrower than a standard market index. Additionally, many new ETFs practice active management, which leads to higher management expenses. These same ETFs may also employ higher-risk strategies, derivatives, or frequent trading, unlike traditional ETFs.
Discover what ETF to buy now by considering your options
There are more than a few options when thinking about what ETF to buy now. The ETFs listed below provide opportunities to an array of investors, from conservative-mind investors to those who prefer an aggressive approach.
Broad-market ETFs: These ETFs cover the largest part of the stock market by allocating a portion to various individual indexes. Some broad-market ETFs provide exposure to the entirety of the global stock market, while others may focus on a specific geographic area or company size. Some of the least expensive ETFs to buy are often the broadest.
Sector ETFs: A sector ETF is perfect for investors who have found an attractive market sector they want to pursue. Focusing on one particular sector can be profitable if you pick the right one. If you don’t, a sector ETF can be riskier than a broad-market ETF.
Dividend ETFs: A dividend ETF invests in high dividend-paying stocks. These stocks may be specific to the United States, or they may be global. The indices involved in building the holdings of a dividend ETF will include stocks that have an above-market dividend yield. These ETFs are typically more liquid than others as well. Traditional dividend ETFs are passively managed, and the holdings often include companies with a history of paying dividends, as well as reputable blue-chip stocks. Dividend ETFs are great for investors worried about taking on too much risk, and those who seek income with their ETF investments.
Real Estate ETFs: A real estate ETF can follow a specific type of real estate or a broader real estate market. These ETFs come with higher volatility than a dividend ETF. They also come with higher yields than other ETF options, due to the nature of real estate ETFs, which involves a requirement to pay 90% of taxable income to shareholders.
Inverse ETFs: These ETFs are also known as short ETFs or bear ETFs. Investors in futures may opt to buy inverse ETFs because they are often developed using derivatives like futures. These ETFs are set to move in the opposite direction of the index it follows. Therefore, if the underlying market index falls, the inverse ETF will become more valuable. These investments come with more risk than dividend ETFs and can involve high trading costs.
As you can see, there is no simple answer to the question of what ETF to buy now. The most important step in choosing an ETF is finding the right kind for you, then exploring that category.
What types of ETFs have you found fit your portfolio the best?