The average investor is at a distinct disadvantage in today’s markets. Large institutional investors, hedge funds, and other large investment houses all have tools available to them which are not available to the average investor. These tools allow them to see what is going on in worldwide markets as well as a trade out of the spotlight of the public market. An individual investor can make money mainly by understanding this system, using their wits and learning about available investment options that may be new to them.
One example of investment vehicles that are new to many individual investors is exchange-traded funds. Exchange traded funds, or ETFs, are buckets of investments pooled together and then sold as though they are individual stock. Technically, they are funds made up of combinations of investments, or they track individual investment vehicles, such as commodity futures. It’s a way for an individual investor to get into certain investment vehicles that might not be available to them otherwise. As an example, many 401K accounts do not offer ETFs as an investment option. Usually, a 401K retirement account is run by a fund company and therefore mutual funds are the extent of the investments available for your retirement funding. Today investing in mutual funds may not always be a good idea. They can have high fees, inflexible investment requirements and other issues that can cause you to lose money when what you’re trying to do is build your retirement account. With exchange traded funds, on the other hand, you have options available to you to invest in individual shares of vehicles that allow you to diversify your funds. You can get in and out of an ETF immediately, not at the end of the trading day as with the mutual funds. In addition, the fees are generally much lower for ETFs than for mutual funds.
So how can an individual investor get involved in investing with ETFs? The easiest way is by opening a self-directed IRA account, or a self-directed 401K rollover. These accounts allow you to choose your own investments, and not rely on a pool of investments that are pre-chosen for you by your fund manager. In addition, you can pick and choose investments based on your feeling about the market, and allows you to be more self-reliant in your investment choices and decisions. As we saw in the last economic downturn, the fact that an individual is a professional advisor by no means guaranteed anyone profits in their portfolios. To the contrary, professional advisors did as poorly in the economic downturn as anyone else. It was only by learning about the markets and investing on your own behalf that your discount brokerage account will be managed with your best interest at heart and not commissions and fees for your broker.