An ETF, or exchange-traded fund, is security in which you can invest. It functions much like a regular stock, but doesn’t track the welfare of a single company like a traditional stock does. Instead, it tracks an entire index or sector, allowing you to grow your wealth based on the success of a whole market. Successful entrepreneurs like Nicholas Kyriacopoulos from Montreal utilize ETFs as a way to grow their wealth while also protecting against the volatility of certain markets. In this post we outline and answer, "what is an ETF?"
The difference between a stock and an ETF is the number of underlying assets each possesses. When you invest in a stock, you are buying an interest in a single company or resource. As that business succeeds or fails, it makes or loses money for you. An ETF has multiple underlying assets, meaning that you are buying an interest in not one company but many businesses across an entire industry or field of focus. This decreases the chance of your money growing exponentially should a single company skyrocket, but it also prevents you from losing money due to a single bad business model. Expert investors like Nick Kyriacopoulos keep a diverse portfolio that includes both stocks and ETFs.
Traditionally, when you buy a stock, you are buying a piece of a company. For most individuals, this doesn’t mean that you get a direct say in how the company does its business; that is reserved for boards and major shareholders. However, those who buy stocks receive reports about the performance of a company and are allowed to sit in on shareholder meetings. ETFs, in comparison, will not allow you to take an actual ownership stake in a company. Nonetheless, you gain money based on the rise and fall of the industry. When you buy into an ETF exchange, your money grows based on the performance of the higher owners in that company. At the same time, you benefit when new companies with great potential for growth enter the industry.
Expert investors like Nick Kyriacopoulos don’t put all their eggs in one basket – they owe their success partly to the fact that they invest in both stocks and ETFs. A stock is often a boom or bust prospect; it provides the most gain when you choose the right time to invest, but also has the largest potential for a loss. By contrast, ETFs often experience steady but not exponential growth while avoiding the potential for major losses associated with traditional stocks. A wise investment in an ETF creates a safety net so that even if your individual stock investments underperform, you still have wealth you can fall back on as you regroup and shift your portfolio.
In terms of how you invest your money and how your investment grows, ETFs are remarkably similar to stocks. The main difference is the level of risk and reward. Those who understand this difference can hope to achieve the level of success that expert investors like Nicholas Kyriacopoulos have reached. Hopefully this gives you clear insight and answers the, "what is an ETF?" question for you!