Exchange traded funds (ETFs) are investment products that can be bought and sold on exchanges, much as an investor would buy and sell stock. Investors that have bought or sold listed securities from a fund company or through a brokerage account already have experience with how to buy an ETF.
The financial advisors on the 6th Avenue Team in Ingalls & Snyder’s Manhattan offices help investors to take that experience to the next level. Rather than just providing a few recommendations on which ETFs to buy, we develop integrated investment plans and strategies for our clients that will include ETFs which serve the client’s unique strategy.
How Do You Buy ETFs? A Primer
Buying and selling ETFs is quite simple:
1. First, open an account with a brokerage or a fund company. A brokerage will give you more ETF options, as a fund company will likely limit you to buying and selling its own sponsored ETFs.
2. Next, decide which ETF you want to buy and what your costs and fees will be. Because ETFs trade like stocks, you will be able to see the real-time price of the ETF that you want to buy. Factor in administrative fees and expenses to calculate the real cost of your investment, and consider whether the ETF offers tax-preferred treatment of gains and dividends.
3. Finally, place your buy order. You should receive confirmation of the purchase almost immediately after you place that order, with full information on the ETF share price that you paid.
How to Buy Exchange Traded Funds: More Details
As you gain more trading experience, the details and terminology of how to buy and sell ETFs will become second nature. You will see that the language of ETF buying and selling is the same as for stock trading:
· ETF Bid and Ask Prices. ETF buyers will bid the highest price they are willing to pay for ETF shares, which is typically less than what ETF sellers ask as the lowest price at which they are willing to sell those shares. The bid and ask prices form the price limits of the ETF share exchange.
· Market, Limit, Order, and Stop-Limit Orders. You can exercise a greater or lesser degree of control over the share price that you pay when you buy ETFs. A market order, for example, will direct a trader to execute a buy at the best price that is available after you place the order, whereas a limit order directs the trader to buy only at a specified (and presumably lower) price. Stop and stop-limit orders impose different price ranges at which orders should be executed.
· Commissions. You will pay a commission fee to your brokerage in exchange for its services in executing your ETF buy or sell orders. Commissions will affect the profitability of your trades.
Investors derive the greatest benefits from their investments when they follow a well-developed plan that serves their specific goals and needs, that focuses on investment over the long term, and that eliminates emotional responses from stock and ETF buy and sell decisions. A proper plan avoids those emotional decisions.
ETFs give investors an opportunity to invest in stocks, bonds, currencies, commodities, IPOs, and other investment assets. Like mutual funds, some ETFs focus on capital gains and others on income. Stock ETFs are further segmented into funds that focus on large-cap or small-cap stocks, companies in different industry sectors, and companies in emerging or mature industries. A good investment plan will provide direction for an investor on how to sort through these thousands of different ETFs, on how to buy ETF shares, and on how long those shares should be held in an investment portfolio. If the plan incorporates higher-risk strategies, the investor might also have opportunities to short sell ETF shares in anticipation of downturns that will depress ETF share prices.
The investment advisors at the 6th Avenue Team at Ingalls & Snyder, LLC in midtown Manhattan serve the wealth management needs of high net worth individuals, institutions, and not-for-profit organizations. The 6th Avenue Team’s directors work one-on-one with each of their clients to form individual strategic investment plans that eliminate emotional investment decisions and that create generational wealth. We do not simply execute orders or give basic instruction on how to buy ETFs. Rather, we work with our clients to verify that every ETF investment is consistent with the investment plan that we have helped our investor clients to develop.
Please call our New York offices for information on investment strategies incorporating exchange traded funds. Schedule an intake appointment today with one of our investment professionals.
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