Financial Talk
One of the cardinal rules of investing is to have a well-diversified age-appropriate portfolio of investments. This simply means “not to put all of your eggs in one basket”, and as we age the less risk we can assume because we have less time to recover from setbacks. The idea behind diversification is to manage risk. When it comes to investing in the stock and bond market there are basically three types of risk that must be managed. First there is market risk, this is the risk that comes from general market corrections where most stocks will decline with the market. The second risk is the industry risk. Certain industries go up and down based on the current phase of the business cycle. The third type of risk is the individual stock risk. This is the risk that comes from owning an individual company where the stock will go
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DON’T PUT ALL YOUR EGGS IN ONE BASKET
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THE BASICS OF EVALUATING ETF’S
DiscoverNorthTexasMagazine.com
By: Ken Willingham
up or down based on factors that could affect the earnings of the company. One way to reduce individual stock risk is through the use of Exchange Traded Funds (ETF). ETF’s work a lot like mutual funds but are bought and sold on the stock exchanges like stocks. When you buy an ETF, you are buying a basket of stocks that usually but not always tracks an index. For instance, the ETF SPY tracks the S&P 500 stocks, The ETF QQQ tracks the biggest 100 stocks on the Nasdaq exchange. Currently there are over 3000 ETF’s available to buy. There are also actively and passively managed ETF’s and “leveraged ETF’s”. Actively managed ETF’s have managers that try to beat their index
