ETFs & Grandma’s Delicious Pie: How ETFs Work and What You Need to Know
By JW Rayhons
Grandma still lives on the farm her and grandpa bought when they got married in 1955. When I was a kid she had a big garden on the southwest end of the farmstead near the house. Her garden was her sanctuary AND full of fresh vegetation. At family gatherings she made sure there was always fresh, sweet rhubarb pie. It was so good that we’d eat dinner faster just to get that first warm bite with a scoop of homemade vanilla ice cream on top.
The first ETF (SPDR) was created by State Street Global Investors in 1993 (https://www.investopedia.com/articles/exchangetradedfunds/12/brief-history-exchange-traded-funds.asp). Prior to that, individual investors could buy & sell stocks that priced throughout the day or mutual funds that priced only at the end of each trading day. The return and principal value of an ETF fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.
Mutual Funds are a collection of stocks grouped together by an investment firm so that investors can own shares of the fund rather than the individual stocks that make up the fund. Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing.
It’s like having a slice of grandma’s rhubarb pie on your plate rather than just having each ingredient. An ETF allows individual investors to own shares like a mutual fund, but trade them throughout the trading day like a stock. Watering your tastebuds again… being forced to wait and eat your slice of pie after dinner (mutual fund) vs being able to enjoy as many bites as you like throughout dinner (ETF).
Sounds kind of like “having your pie and eating it too,” doesn’t it? Something to keep in mind is that there is always pros and cons to all types of investments. Even though our example only mentioned stocks in the makeup of ETFs and mutual funds; both can include variations of stocks, bonds, and commodities or currencies. ETFs tend to have lower internal expenses than mutual funds, but can sometimes have transaction costs associated to them because they are traded like stocks.
Like with any investment, it is important that you understand how it fits into your overall financial situation. This will largely depend on what your most important goals are. Rhubarb is a very good source of dietary fiber, vitamin C, vitamin K, calcium, potassium and manganese. It is also low in saturated fat, sodium, and cholesterol. Grandma’s rhubarb pie tastes delicious!… BUT, if you have an important health goal, you may need to use the rhubarb in something other than pie.
There’s more to life than money! The Rayhons Financial family are professionals that want to help you. Connect with us for an initial conversation, call us at (480) 507-2425 or contact us online. We’d love to meet you.
The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.