How to buy ETFs?

by Manshu on October 20, 2009

in ETF

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Image by John & Fish

This question crops up in comments from time to time, and I thought it would be a good idea to do a quick post on it.

How to buy ETFs?

ETFs can be bought just like stocks, and if you already have a stock portfolio, buying an ETF should not present any problems to you at all. You have to find the symbol of your ETF, go through your broker, place a market or limit order for it, and you are done. That’s it – it’s that simple.

Possible cause of confusion

It is my conjecture that a little confusion is caused on this topic by the following two statements (both of which are true and seen often):

  • ETFs can be traded like stocks
  • ETFs can act as an alternate to mutual funds.

It is true that ETFs are like mutual funds because they hold positions in underlying assets such as stocks, future contracts, commodities etc. (like mutual funds).

However, the difference is that they trade on a stock exchange all day long like a stock (unlike a mutual fund). That also happens to be the dominant similarity they have with stocks.

It seems to be me that a lot of people hear that they can buy ETFs instead of mutual funds, and try to buy ETFs like they would buy mutual funds. But, when they are unable to do this, they get confused.

This is just a guess though, and it could well be that the question crops up because people are just unfamiliar with them. There is so much information on asset classes, risk management, asset allocation and other subjects of investment management — that sometimes it becomes difficult to know where to start, and find answers to even simple questions.

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