Tom Shares What an ETF is and Explores Whether he Recommends Buying an ETF or Stocks.
Katie Nealis: Here’s one from the question bank is an ETF. Ah, okay.
Tom Vaughan: So an ETF stands for exchange traded fund. And so the concepts if you go, there’s different pieces. So you could say, Okay, I want to buy an individual stock, let’s say Ford. Well, I can buy Ford, right? All right, maybe I want to buy more of the automobile, automobile makers, even internationally. So an ETF would go out and put together a basket of auto companies, for example, there’s, there’s a, there’s 2300, ETFs, that I follow that kind of fit my criteria. And they’re basically all different baskets of different types of stocks and what have you. And it’s a really, really great way to be able to buy a diversified piece without having to, you know, let’s say I wanted to buy the s&p 500.
Well, it’d be pretty onerous to go out and buy all 500 stocks, but I could go to Vanguard and buy theirs. And I buy one, it’s called vo O, for example, is the ETF. And I buy that and I can get it for you know, without any commission right now at TD Ameritrade where Charles Schwab actually where we’re where we’re working. And then it trades like a stock, I can buy and sell it during the middle of the day, I can, you know, put in a stop loss. If I want to try to protect my losses, I can do covered calls and different types of options on those. And they’re really, really fantastic. And actually the I think the fastest growing area of investment right now is the ETF arena as a whole just because it does meet so many criteria for people. So that’s that’s what an ETF is, it’s it’s a good thing to know about, right?
Katie Nealis: Well, Tom, let’s say I have $2,000 Yeah, should I buy an ETF and mutual fund or a stock?
Tom Vaughan: I personally, especially when you’re first starting out like that would would probably I just started with a very young advisor, client had a little bit more than that, but not that much more. And I asked him and talk to him about kind of, you know, what he was interested in, and we picked one stock, and we put that in there. And then the rest of the money went into ETF. And so I think you know, it’s very important to try to get a decent rate of return. If you pick the wrong 1235 stocks, I get $2,000 is all of a sudden, the $1,000 you’re not going to have a lot of enthusiasm for investing at that point in time.
So I do think it’s good to get started in the right way. But I think it’s really fun. You know, maybe you buy 100 shares of one stock that you’re very interested in. So kind of that combination. And that’s what I just did with one of my really young clients have family, a child and one of my clients so and that’s been fun. I think that’s kind of the way to go. I got started with individual stocks, but that ETF didn’t exist. And now I have way more fun trying to find categories that are doing well and I buy the whole category, and I’ve done better there than with the ETF so I would do mostly ETF but the stock part is still fun.