Easy-To-Understand ETFs

By Tim Parker | November 22, 2011 AAA

Do you ever feel like there's a building full of people whose sole duty is to make investing as difficult as possible? If you're frustrated with all of the different investment options, you're not alone. Fortunately, there are some exchange traded funds that didn't make it to that complicated building. If you're just getting started as an investor, consider these ETFs.

TUTORIAL: Exchange-Traded Funds


SPDR S&P 500
Find any seasoned ETF investor and say the word, "spider" to them and they'll probably say something about the SPDR S&P 500 (NYSEARCA:SPY). The SPY tracks the performance of the S&P 500. Many investors may not have the experience or knowledge to pick individual stocks, so the SPY provides access to all 500 stocks in the S&P index, eliminating the need to choose. It's also the most highly-traded ETF, with more than 250 million shares changing hands daily.


SPDR Gold Trust
If you want to get in on the rising price of gold, but you don't want to own the physical metal, let the SPDR Gold Trust (NYSEArca:GLD) do it for you. The trust holds over 40 million of the precious metal in London, England. Keep in mind, however, that owning a gold ETF isn't the same as owning actual gold, but this highly popular ETF is a staple in portfolios all over the world.

PowerShares QQQ Trust
The PowerShares QQQ Trust (Nasdaq:QQQ) is referred to as "The Qs" by traders. This ETF invests in the NASDAQ 100 index and is used as a way to track the performance of some of the most popular technology companies. For the investor who wants to have a larger technology weighting in his or her portfolio, The Qs is the most popular way to do it.

iShares Russell 2000
The iShares Russell 2000 (NYSEArca:IWM) is where you go if you want an ETF that tracks the performance of some of the thousands of the small companies that are publicly traded. Small-cap companies are more sensitive to the overall stock market, so investing in the IWM isn't for those with a low-risk tolerance. However, these smaller companies have given investors larger opportunities for growth than larger companies that have already gone through their financial growth spurts.

The Other Spiders
Within the family of the SPDR ETFs there are a large amount of offerings that track the performance of all of the different sectors of the economy. The most popular of these select sector ETFs are the Financial Select Sector ETF (NYSEArca:XLF), Industrial Select Sector ETF (NYSEArca:XLI) and the Consumer Discretionary Select Sector ETF (NYSEArca:XLY); all of which track the sectors where they derive their namesakes.

The Bottom Line
The above ETFs are not only easy to understand, but are among the most popular with investors. Even the most seasoned money managers gravitate towards financial products that are easy to understand. Investors of all skill levels should resist the urge to look for more complicated products. In the case of investing, the popular cliché of "less is more" certainly applies.

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