For New Investors, Index ETFs Provide Simple Broad Market Exposure

A new investor stepping into the world of exchange-traded funds (ETFs) for the first time is faced with a daunting task—where to start with over 2,000 funds available. Fortunately, there are broad market funds that can give novice ETF investors the diversification they need.

“Index ETFs (exchange-traded funds) are collections of stocks designed to replicate a particular index, such as the S&P 500 or Dow Jones Industrial Average,” Katie Brockman wrote in The Motley Fool. “When you invest in an index ETF, you’re actually investing in dozens of or even hundreds of different stocks, bonds, and other securities at once. This creates instant diversification, which can significantly limit your risk because even when a handful of stocks in the fund aren’t performing well, it won’t sink the overall value of the fund.”

“Diversification is one of the biggest advantages of index ETFs, making these funds perfect for beginners,” Brockman added. “Timing the market correctly is extremely difficult (even for the experts), and choosing individual stocks to invest in requires loads of research. With index ETFs, however, you can invest in hundreds of stocks at once without having to worry about how each individual stock in the fund is performing.”

A couple of popular broad market funds include the Invesco QQQ ETF (NASDAQ: QQQ) and the SPDR S&P 500 ETF (NYSEArca: SPY). Investors wanting broad exposure to the Dow Jones Industrial Average can look to the SPDR Dow Jones Industrial Average ETF Trust (DIA).

For ETF investors looking for additional diversification that spans across various assets via active management:

  • Principal Active Income ETF (YLD): YLD is an actively managed fund that seeks to achieve its investment objective by investing its assets in investment grade and non-investment grade fixed income securities and in equity securities. The fund’s Sub-Advisors, actively and tactically allocates the fund’s assets among fixed income securities and equity securities in an effort to take advantage of changing economic conditions that the Advisor believes favors one asset class over another.
  • Principal U.S. Large-Cap Multi-Factor Core Index ETF (PLC): seeks to provide investment results that closely correspond, before expenses, to the performance of the Nasdaq US Large Cap Select Leaders Core Index. The index uses a quantitative model designed to identify equity securities of companies in the Nasdaq US Large Cap Index that exhibit potential for high degrees of sustainable shareholder value, growth, and strong momentum.
  • Principal Ultra-Short Active Income ETF (USI): seeks to provide current income. The fund is an actively managed ETF that seeks to achieve its investment objective by investing in fixed- and floating-rate securities. Under normal circumstances, the fund maintains an average effective maturity of three years or less and an average portfolio duration of one year or less.

For more relative market trends, visit ETF Trends.