Exchange Traded Fund (ETF)

An Exchange Traded Fund (ETF on short) is a group of stocks that is considered and used like a single stock. ETFs can be used for covered calls because they are optionable. For example, if you buy an ETF from a company contracted out of 500 stocks it practically means that you bought 500 stocks that are considered as one. One ETF advantage against a single stock is that it offers smaller risk and a potentially lower volatility. You ask how EFT offers these advantages compared to single stock? Let's say that a company releases an earnings report that has a drastic effect on a single stock dramatically reducing its value. This risk is more contained when you have a collection of stocks or ETF. Also it is good to have ETFs in your portfolio because it provides diversity. Some popular ETFs are: SPY (S & P 500), IWM (the Russell 2000), (NASDAQ 100). The number associated with the ETFs basically reflects to the amount of stocks it contains.

A Gold ETF, on the other hand is an asset that must be included in the portfolio of any serious investor who is interested in investing in diversified assets as possible. Investing in gold is a great idea because it is one of the most solid assets on the market. Gold also performs very well against inflation and any sound and diversified portfolio should have at least some exposure to it. The main disadvantage of investing in gold though is that you will not get cash dividends on it but like on any ETF, you have the possibility of writing covered calls on it. The most known gold ETF is SPDR Gold Shares ETF, but there are others as well like PowerShares DB Gold Fund, iShares COMEX Gold Trust or ProShares Ultra Gold.

An investor should always try to have a diversified portfolio as much as possible. Specialists believe that for a complete and diversified portfolio, besides exposure to gold, you should definitively have exposure to emerging markets because currency markets are very volatile. The problem is that there are many emerging markets, each with many companies. For many companies the right information will be hard to get, maybe even inaccurate and inconsistent. The best and easiest way of achieving emerging markets is using an ETF (exchange traded fund) where the most common would be the MSCI EEM. It also depends what kind of countries you want to approach. For example, if you want exposure to China, then you could use iShares FTSE FXI.

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