Everything you wanted to know about ETFs

When you save with Dvdendo, your money is invested exclusively in ETFs. So it’s helpful for you to know what an ETF is—and why Dvdendo stands behind this investment option as the smartest way to invest.

What is an ETF?

An ETF (“exchange-traded fund”) is a security that’s bought and sold whenever the market is open—just like a company’s stock. But unlike a company’s stock, ETFs track an index: a commodity or a “basket” of assets.

You might already be familiar with common stock market indexes like the NASDAQ, S&P 500, and Dow Jones. Indexes give you the benefit of a diversified portfolio, and when packaged as an ETF they are easier to trade because they are treated as a single stock.

For us, this balance of minimal risk exposure and maximum liquidity—not to mention low management fees—makes ETFs as a whole an affordable, desirable option for new investors.

Who invests in ETFs?

Anyone can purchase an ETF through a broker. However, because of their simplicity and affordability, ETFs are a popular choice among Millennials. (It’s also a coincidence that ETFs launched in the 1990s, around the time many Millennials were born.)

Because they consist of a collection of stocks, ETFs allow young investors to invest in niche themes or industries. For young people who are passionate about topics such as biotechnology, organic products, or healthcare, ETFs allow access to brand-name companies while minimizing risk exposure.

For all of these reasons, we feel ETFs are aligned with the spirit of the Dvdendo mission.

Which ETFs does Dvdendo invest in?

Depending on your risk personality and other important factors, your individualized portfolio will have a different composition of stocks, bonds, and underlying ETFs.

We invest your portfolio across a diversified set of assets, including stocks and bonds, but all of them via ETFs. We have carefully selected a set of ETFs from some of the largest, most well-known providers (such as Vanguard and Blackrock). Our selection criteria takes into account important factors like expenses, daily trading volumes, total market capitalization, and tracking error.

Historically, an investor needed a cash balance of $500 (or more) to be properly diversified in the market. Fractional share technology allows you to own just a small portion of a single ETF—yet be fully invested across eight ETFs.

How is passive management different than active management?

We take a passive approach to investing. This means that we don’t try to time the market to pick “winners” and “losers.” Instead we invest your money in many of the world’s greatest companies and safest government bonds over a longer time horizon.

One way to think about it this: With an actively managed account, you are investing in the acuity and judgement of a particular fund manager. Many recent historical studies show that active fund managers are very unlikely to even match the performance of the market let alone outperform. But with ETFs, you’re investing in the market itself and paying significantly lower fees.

Our passive process, fine-tuned by experts with multiple decades of financial experience, leverages real-world market experience and proven quantitative methodologies with the cost savings and efficiency of innovative technology.

What questions do you have about ETF?s Leave a reply in the comments below.