Exchange trade funds (ETFs) have been growing in popularity for various reasons, and young investors should definitely be aware of the benefits provided by these financial instruments
ETFs are financial instruments that invest into a bundle of assets and trade like stocks. One major benefit that they provide investors is exposure to assets and risk management strategies that previously required much larger initial outlays.
For example, an investor can purchase a share of a gold ETF for less than $200, compared to the thousands of dollars required to create a commodities account. Alternatively, a market participant can gain easier diversification by purchasing ETFs that invest in the S&P 500 Index and therefore offer exposure to a basket of blue-chip stocks.
Market experts have repeatedly promoted diversification as a means of reducing portfolio volatility. The strategy becomes less effective in down markets, as widespread fear and pessimism help to drive selloffs in financial assets that pushes them down together.
Investors can use inverse ETFs to short plunging indices during down markets to obtain returns when many other market participants are being forced to accept losses.