ETF’s

Return on ETF’s is just like that for index investing. There is a minor charge for running the fund so it performs slightly less than the benchmark it follows. SPDR’s (spiders) are an ETF that mimic the S&P 500, DIA (diamonds) mimic the Dow and QQQ (cubes) are the top 100 nasdaq stocks. I thought your book covered this but the way you buy an ETF is just like a stock. So for one transaction fee you buy 100 spiders and your return will be very similar to the S&P 500. You can sell it any time of the trading day and you can short it, not like a open end mutual fund.

The reason they so closely track the benchmark is that arbitrage is allowed in which the large investment firms can buy an ETF and break it apart into its pieces and sell them to make a quick profit if the market price gets too far out of line. This isn’t true of closed end funds, which sell at a discount to NAV.

I hope this helps. I really like ETF’s and believe they will become more a part of the market as time goes by.

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