Trading Essentials: Roger Scott Shares Everything You Need To Know About ETFs
An ETF, otherwise known as an exchange-traded fund, is a type of stock that pretty much acts as a group of stocks. There are many benefits to buying ETFs over individual stocks, and many people will opt to have both in their portfolios.
There are a lot of things investors should know about ETFs, and only an expert could truly explain them all. Luckily, I happen to know an expert! I talked with Roger Scott, the head trader of WealthPress, and asked him to explain everything an investor should know about ETFs.
He agreed, so now I’m going to share exactly what Roger Scott had to say!
What is an ETF
Roger Scott dumbed down ETFs for me so that I can give you a quick summary. Pretty much an ETF is a stock that you can buy, but you’re not buying the stock of an individual company. Instead, you’re buying a stock that represents small stakes in many companies.
ETFs can hold various percentages of many companies. Most ETFs will have a specific industry or product that it is targeting. For example, there is an ETF for social media stocks; there’s one for tech in general, ai ETFs, etc. There’s an ETF for pretty much anything you can think of.
Much Safer than Stocks
One of the main benefits of an ETF is that it is a lot safer than regular stocks. If you buy a business’s stock and it performs poorly, your investment will lose money.
Now, if you buy an ETF that holds many different businesses, and one of them does poorly, your ETF will not necessarily go down. It may even go up if another stock in the ETF performs well. Roger Scott highly recommends ETFs to people that want to invest but do not have the time to research and do their due diligence for individual stocks.
Less Risk, Less Reward
Roger Scott emphasized that while ETFs are less risky than stocks, they will also yield fewer rewards when a stock does well. If you were to invest in Apple, for example, and Apple’s stock skyrocketed, you would see fantastic gains.
On the other hand, if you were to invest in an ETF that held Apple and another company that wasn’t performing so well, then your profits would not be as high because the other company would be holding your ETF down.
Long Term Holds
When it comes to ETFs, Roger Scott is a believer in the old phrase, “Time in the market beats timing the market.” ETFs are fantastic for long-term, low-maintenance portfolios, which is why so many people rely on them for their retirement accounts.
ETFs are not something most people will buy and expect a huge boom within the year. They are something you buy when you believe in the industry or market you’re buying into and think it will increase over a few decades.
Not Full-Proof
Finally, like most professional traders and investors, Roger Scott believes a diverse portfolio is the way to go. ETFs can tank just like any other stock on the market.
Once its bubble pops, you can still lose money buying an over-inflated ETF. So it’s important to do research still and listen to professionals. A balanced portfolio will have both ETFs and stocks in it.
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