What ETFs to Invest in 2010?

One of the most revolutionary financial innovation that took place in the last decade of 20th century is the development of Exchange Traded Funds (ETFs). ETFs have completely changed the landscape of the world of investing. ETFs give you all the advantages of investing in stocks and mutual funds with none of their disadvantages. Read this article to know how ETFs can change your fortunes in 2010!

So what makes ETFs superior to stocks and mutual funds. You see, when you invest in a few stocks, your portfolio is not hedged. This is why most of the people invest in mutual funds that give them diversification. But mutual fund shares can only be sold or bought at the end of the day when the mutual fund NAV (Net Asset Value) is calculated. The next day when the trading starts, the market might have changes and this NAV may already be stale. But you cannot dump the mutual fund shares. Mutual funds also come with front end and back end fees known as loads plus management fees. So what to do, invest in ETFs. ETFs trade just like stocks,you can buy or sell ETF shares anytime of the day. You can go short on ETF shares anytime unlike stocks that have the uptick rule preventing shorting. At the same time, an ETF provides you with the advantages of a mutual fund. Yes, diversification but with very low fee something like 0.7% as compared to 2-4% for most of the mutual funds.

So what are ETFs? ETFs are basically a basket of stocks or assets like gold, commodities, currencies that mimic a certain market index. That market index can be any stock index like the famous Dow Jones Industrial Average (DJIA) Index, NASDAQ, S&P 500, S&P Composite, DAX, FTSE or any other stock index or it can be any other market sector index like the semiconductor market index, energy market index, oil market index, commodity market index. The universe of ETFs is expanding with each new year!

This makes ETFs quite versatile. Now, you can even find ETFs that that mimic foreign countries or regions markets. Now if you want to invest in foreign stocks, Country ETFs or Regional ETFs are the best method for you to profit from foreign markets.

Now, let’s make it clear with an example. Suppose, you had invested $10,000 in Dow Diamonds Trust ETFs in 2009, you would have made a profit of 16.86%. On the other hand if you had invested in iShares MSCI Brazil Index ETF, you would have made a whooping 96.84% return. Some experts are saying that Brazil will be the best investment for 2010. Brazil is now the 9th largest economy in the world and has a number of advantages over China and India.

Whatever, ETFs investing has many advantages over stocks and mutual funds. With the variety ETFs that have been developed over the last decade, the options are unlimited now. Now, you can invest in Inverse ETFs. Inverse ETFs mimic an index in an inverse manner. If the index goes up 2%, the Inverse ETF will go 2% down. This way, you can profit from a market downturn without even shorting. You can even find Leveraged Inverse ETFs. If the index goes up by 2%, the Leveraged Inverse ETF will go down my a multiple of 5 to -10%.

Leave a Reply

Your email address will not be published. Required fields are marked *