What are ETFs: Starters guide for investors

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What are ETFs: Starters guide for investors

Read below to learn more about what ETFs are, how do investors invest in ETFs and what are things to consider when it comes to ETFs.

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Exchange Traded Funds (ETFs) let investors gain exposure to a wide range of companies, assets or industries through a single investment.
ETFs are bought and sold on the stock exchange like shares, using a broker or digital trading platform.
Understanding how ETFs are structured, along with the risks involved, can help investors decide whether ETFs suit their investment goals.

What are ETFs?

Exchange Traded Funds (ETFs) trade on the stock exchange like individual shares. They can provide you exposure to a wide range of companies, assets or industries in one simple investment. ETFs are often constructed with investments that follow an index or a specific theme, for example an ETF may track the ASX200 and invest in the top 200 companies listed on the ASX or they may choose to follow a theme such as Technology and invest in companies in that industry or sector, or they may choose to invest in Corporate Bonds.

How do I invest in ETFs?

ETFs are traded on the stock exchange like shares. To buy ETFs you need to use the services of a ‘broker’ to complete the actual transaction of buying or selling shares. A broker can be a person who physically places and registers trades on your behalf or a digital platform.

Things to consider when it comes to ETFs

ETFs are generally invested with a particular theme i.e. Aussie Top 200 companies, Healthcare, Tech, Emerging markets or track an index and they do not offer you as an individual investor, choice in what companies or assets to invest into.

It’s important to understand the associated risks such as market risk (ETF values can fluctuate), liquidity risk (buying and selling can be hard during volatile periods), performance risk (returns may differ from the underlying index).

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Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. You can view the CommSec Share Trading Terms and Conditions, CommSec Pocket Terms and Conditions and Financial Services Guide, and should consider them before making any decision about these products and services. Past performance is not indicative of future performance.

© Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CommSec is a Market Participant of ASX Limited and Cboe Australia Pty Limited (formerly CHI-X Australia Pty Limited), a Clearing Participant of ASX Clear Pty Limited and a Settlement Participant of ASX Settlement Pty Limited.