ETF Fund Explained: Definition & Overview 2022

A question asked the most by every F0 investor when entering the stock market is “What should I buy now?”.

Choosing a few stocks to invest in is a very headache job when on the U.S stock market, there are currently more than 15.000 stocks. And if you have the same question, then Certificate of Fund (CCQ) ETF is the answer.

What is an ETF Certificate?

ETF stands for Exchange Traded Fund. Because it is a “fund certificate”, when you buy an ETF, you are investing in a group of stocks or assets, and your money will be managed by a professional investment fund.

In addition, there are 2 characteristics of ETF that make it different, which are:

  1. The ETF will simulate the change in the value of a market index (such as Vnindex, VN30) of a commodity, an asset or a commodity (such as the price of gold, the price of rice, the price of steel, the price of coal, etc.). ). So the goal of the ETF’s profit growth is to match the market, not beat the market.
  2. ETF can be traded on the stock exchange like a common stock.

How are ETFs created?

Let’s say you are a safe investor and want to buy shares of all companies in the NASDAQ-100 (NAS100), ie a stock market index made up of 102 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market.

This will cause many difficulties because firstly, you will be very laborious because you have to create at least 100 individual transactions. Second, you will need a very large amount of money, when each trade you have to buy at least 100 shares. If temporarily taking the average price of 100 codes over $5 USD, the amount you need to spend is:

100x100x5 = $50,000 USD.

This is no small amount for a beginner.

To solve this problem, a fund management company X will spend 100 billion to buy 100 stocks in the NAS100 group according to the same value and proportion as the NAS100 portfolio structure. From there, they established an ETF, modeled after the NAS100 index. Fund X then splits its 100 billion shares into 1 million fund certificates at $10 USD each. And now, by buying these ETF certificates, private investors like you can “buy” all stocks in NAS100 without spending too much money.

Why should you buy CCQ ETF?

First, the ETF is a great tool for those who have little experience and understanding of the market but still want to invest. They will not have to study each stock and the company’s behind-the-scenes activities, but just need to know a very general and basic way about a sector or a country, and choose the ETF that is emulating the index. corresponding number.

Second, ETFs help investors diversify their portfolios at a low cost, thereby minimizing volatility risks, especially for ETF indexes that mimic large-cap stocks in the market. . Another advantage of ETFs is that the fees are cheaper than other fund certificates, due to the low operating costs of the ETF.

However, a basic thing in investing is that low risk also comes with low return. Investors need to understand that ETFs only want to generate returns equal to the growth rate of the index or commodity they simulate. So you can’t ask the NAS100 ETF to give you a 20% a year yield while NAS100 companies have only grown 15% in the past year.

In addition, the biggest disadvantage of ETFs is that because investors do not directly hold shares, they will not receive the rights of ordinary shareholders (receiving dividends, receiving bonus shares, the right to attend a general meeting. shareholder meeting, etc.). It is the ETF fund management company that plays a shareholder role in the stocks in the portfolio, and whether the interests of investors are guaranteed or not, will depend on the transparency of the fund management company.

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William Anthony is an Entrepreneur, Strategist, and Blogger. Back in 2015 when He checked his credit score, it was lower than 500. That's not even a passing grade! Since then He always wanted to know more about how credit works, and for the last 7 years, He has researched and tested all things about Credit Score, Credit Card, etc. And now, after succeeding in many cases in His Credit Score Journey, He wants to share all of his experiences with you guys. Hope that reading articles about Credit Score, Credit Cards, Credit Repair, etc. will become more clear for your own Credit Journey.

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