An ETF, or exchange-traded fund is a security that tracks an index of commodities, bonds or stocks. The benefits of ETF's are: - Balanced/Diversified investment - Low MER (Management Expense Ratio)
(Img Source)What is an Index?
An Index is a measurement of value of a section of the market. It is computed by the average price of the stocks or commodities it is indexing. For example an index of the S&P 500 contains equal stock holdings for all 500 companies. Someone holding a S&P 500 index fund would get the average ROI of all 500 companies. Since you are getting the market average it takes out the risk of holding stocks in a single company which could go belly up.What are the disadvantages of ETFs and Indexing?
Since you are investing in the market average you can only expect average returns. You are not holding a single company like Apple or Tesla so your holdings will never double or triple in value overnight.Why not just choose good stocks instead of Indexing?
If you want to go this route I wish you the best of luck. Even the best on Wall Street have a very difficult time beating the market consistently.What about Mutual Funds?
These are great if you want to lose 2-3% of your investment right away. You are paying high fees for some overpaid fund manager to roll the dice and pick a bunch of different investments. Typical mutual fund holdings include equities in local, foreign and emerging markets, fixed income assets, cash and commodities. The problem with mutual funds are two-fold:Even the best investor has a hard time "beating the market". The MER on mutual funds is very high, typically 2-3%
So if a typical fund manager has a hard time beating a fund indexed against the market, why pay him 3% of your investment?
Please remember that the above post is not financial or investment advice but instead a look into how I invest in crypto. Always se...