Frequently Asked Questions about ETFs

By Jeffrey Jackson

Q: Are ETFs guaranteed or insured?

The Depository Clearing Corporation, a government agency, which ensure sock certificates purchased are delivered to the purchaser and assigned to the same. Anytime a new ETF is created, the SEC is sure to review and examine every application. Chances of abuse have been very low.

Q: Are ETFs only for stocks?

No, they aren't only for stocks. Liquid assets of any type linked to a published index can turn into an ETF. ETFs exist for Commodities, Emerging Markets, Bonds, Foreign Currency, Latin Top 50, Japanese Futures, Basic Materials, Precious Metals, and a whole host of others.

Q: Do other countries also have ETFs?

Yes there are. Most developed countries have them including countries in Europe and across the Pacific Rim. ETFs will gain popularity in most countries in the world as there is greater economic and political stability.

Q: Do any ETFs actually beat the market?

Actively managed funds currently beat the market by 2 or 3xs. Actively managed funds are operationally much harder to manage. It is, however, much easier to build an ETF when all participants in that process know the details of where stocks are being invested. It is in the nature of actively managed funds to be secretive in order to avoid eager parasitical resellers.

Q: Are there ETFs for the Dow Jones Industrials or S&P 500?

Of course, there are several different funds that track these indexes. It's important to keep in mind the S&P and Dow Jones stay in tact as their own indexes, and more than one fund can track an index through that fund groups license. Pick the fund, open up an account with a broker and start trading.

Q: Could ETFs possibly be a fly-by-the-night trend or fad?

It's very unlikely it's just a fad. By the end of 2009 assets of exchange traded funds totaled and astounding $656.91 billion. Year over year the steady growth of ETFs has been stronger and more consistent than other financial products. Mutual funds haven't even seem the same growth ETFs have experienced. - 31970

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