An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. ETFs can often be used by investors to diversify your portfolio as they hold multiple underlying assets, rather than only one asset (like stocks).
Like any investment, ETFs come with pros and cons. Some advantages include lower expense ratios, access to more stocks across various industries, and they manage risk through diversification. However, not all ETFs are what they seem. A rise in social media influence has many investors looking at the latest ETFs (often with catchy names) but it is important to truly understand where your money is going. The article “Do You Really Know What Is Inside Your ETF? Probably Not” by Matt Krantz takes a deeper dive into some of these trending ETFs.
The US Vegan Climate ETF (VEGN) is a perfect example of when you should ask yourself, “what am I really investing in?” While most people would believe that VEGN is about a plant-based food future, it is surprising to see 4.6% of its portfolio in Microsoft (MSFT) and 4.8% in chipmaker Nvidia (NVDA). In fact, more than half of VEGNs portfolio involves stock accounts connected to information technology. You could make an argument on why these are beneficial to have in an ETF but they seem like a bit of a far fetch when trying to relate it to a plant-based food future.
There are so many factors to consider when investing and there is an extensive selection of EFTs to choose from that it can become overwhelming. Well, we are here to help you! Let us do the research for you and help you reach your financial goals.
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Chen, J. (2021, July 28). Exchange traded fund – etfs. Investopedia. https://www.investopedia.com/terms/e/etf.asp#advantages-and-disadvantages-of-etfs.
Krantz, M. (2021, July 16). Do you really know what's inside your etf? Probably not. Investor's Business Daily. https://www.investors.com/etfs-and-funds/etfs/best-etfs-do-you-really-know-whats-inside-your-etf-probably-not/.