ETFs – The Five Key Questions

1. What is the difference between ETFs and mutual funds or stocks?

iShares ETFs combine popular features of both. Like a mutual fund, an ETF is a collection of stocks or bonds. And like a stock, you can buy and sell an ETF throughout the day as long as the market is open.

Shares of iShares Funds may be bought and sold throughout the day on the exchange through any brokerage account. However, shares may only be created or redeemed directly from the Fund by Authorized Participants— typically large investors--in very large creation/redemption units. When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds.

More information can be found here.

2. What are the main benefits and risks of ETFs?

Benefits

  • Efficiency and access: ETFs are traded on stock exchanges, so you can easily make or add to an investment, or sell your investment. It’s as easy to get out as it is to get in.
  • Cost effectiveness: ETFs often have lower costs than other types of investment funds.
  • Diversification: ETFs give you access to a whole world of investment options, covering a broad range of asset classes, sectors and geographies. This can help to spread risk and avoids putting all your eggs in one basket.
  • Transparency: ETFs give you greater control of your investments and you know exactly what you’re investing in. With ETFs, you have daily visibility as to what securities the fund holds, how it’s performing and associated costs.

Risks

  • ETFs are not guaranteed products – just like any investment in the stock or bond market, your initial investment is subject to loss. The value of your investment and income from it will fluctuate and your initial investment is not guaranteed.
  • Past performance is not a guide to future performance and should not be the sole consideration when selecting a product.
  • When buying and selling ETFs, it is important to remember that transaction or brokerage fees will apply and that liquidity is not guaranteed.

3. Are ETFs professionally managed?

iShares ETFs are overseen by some of the most experienced portfolio managers in the industry. Our fund managers aim to ensure the ETF does what it's supposed to do. This includes closely matching the ETF's benchmark index and keeping its fees low.

Index ETFs differ from actively managed funds, in which the manager attempts to "beat" the market's performance, which often increases fees. Beating the markets – especially after fees – can be quite challenging.

4. How do you buy an ETF?

There are two easy ways to purchase iShares ETFs:

1. Talk to your adviser about adding iShares ETFs to your portfolio.

2. Purchase iShares ETFs directly from any online brokerage account.

5. How do you use ETFs in your portfolio?

ETFs are extremely versatile. Many investors use them to pursue long term goals, such as funding their retirement or growing wealth. Others take advantage of ETFs to help achieve specific goals, such as seeking income or managing against jumpy markets. And those with strong market views use ETFs to seek timely new opportunities, instead of picking individual stocks, bonds or mutual funds.

All financial investments involve an element of risk to both income and capital.  Transaction or brokerage fees will apply. Liquidity is not guaranteed.