ETF explained

ETF or Exchange-Traded Fund is a very convenient tool to invest in stocks or other types of securities.

Imagine you want to invest in the American Nasdaq. You want to overweight the tech sector, but you don’t know exactly which are the best stocks. To do that you have 3 options basically:

- Buy a normal fund that invests in Nasdaq.

- Select a basket of shares from the Nasdaq based on size, behavior...

- Buy an ETF, like QQQ.

More or less it has been proven that you cannot systematically beat the market, therefore using a normal fund might not be a good idea because of the fees (1-2%). Selecting a basket of shares can be complicated if we don’t have enough money and we won’t be totally diversified. The best thing would be to buy the Nasdaq index as a whole and for that we use an ETF. For instance, QQQ tracks the Nasdaq and its annual fee is just 0.2%.

The process of buying an ETF is exactly the same as the one we use when buying shares. We just go to our broker, find the ticker, set the price and number of shares and that is all.