There are a multitude of ETFs to choose from, but don't fall victim to investment fashion. They may be cheap, but they are certainly not low risk.
An Exchange Traded Fund (ETF) is basically an index tracker fund. ETFs can track a collection of shares, such as the FTSE 100, but they more usually track a commodity such as oil price.
They differ from a managed trust in that they are very liquid (they can be traded throughout the day, not just at end of day) and costs tend to be lower because there is no active manager.
They can be a useful way of getting exposure to a particular sector without having to decide on a particular share, but it is important that as an investor you fully understand possible risks with the various ETFs offered, particularly if they track something esoteric like derivatives. Some ETFs, also known as ‘synthetic ETFs’ don’t actually hold the assets in the underlying index. These are essentially a promise by the ETF provider to replicate the return of the selected index. They may be an appropriate investment for you, but it is essential for you to understand what the risks are with each ETF.
The best way to protect yourself is to make sure you know exactly what type of ETF in which you wish to invest. You are strongly recommended to seek advice from a financial adviser and have them explain the risks inherent in each type of structure and whether they are appropriate for you. If you wish to speak to an LGBT-friendly financial adviser about this or any other matter, please enter your postcode under the map on the right, to find an adviser near you.
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