EFTs

Well now you've just impressed your high school dropout father in law with an exaggerated description of what an Index is. Now for your next trick you are going to introduce the man to ETFs, an abbreviation for Exchange Traded Funds.

An exchange traded fund is a type of product that buys shares in all of the companies in an index *Points* . If an index tracks 5 car companies, a company can make a product by buying shares in each of those companies and then selling slices of that product to the public.

When the five companies do well, the index goes up and the ETF does well. If the car industry struggles and the companies don’t make money, index goes down and so does the ETF.

Your father in-law is still shaking his head so you get an idea. You say to him "think of an ETF as a cake. You have different ingredients that go into a cake yes?"

To which he nods but says his never made one sweeter than his little girl.

*you laugh because well you have to*

You take a sip of Jameson and continue to say.

Think of the safest companies/investments in recent times so say Apple, Coca Cola, Commercial Property (before the pandemic) etc.

Now consider each of these to be ingredients for a chocolate cake, Or vanilla it's not that serious. So you have your Flour, Baking powder, Milk, Eggs and all the other stuff.

An EFT is the final cake. A compilation of all these ingredients. So whenever you buy a "slice" of the EFT you have then invested in part of each ingredient (each company or product). Simple right?

It's quite simpler than buying each ingredient at once and going home to bake the cake. So now you don't have to keep track of each individual stock the EFT does that for you. It's great for people who barely can spare the time to track each individual Investment.

The EFT is basically a product created by banks and financial institutions. They are the bakery who create this final product for you. You just pay for the final package and track its performance.

So now you own some Apple stock, Coca-Cola stock and all the other ingredients in your EFT. They are compiled differently and are easy to keep track of on an index *points at father in law*

Thank you for making it to the end!!

Yet again thank you for making to the end of this thread.

I would just like to point out an error on my post about ETFs. I repeatedly made the mistake of typing in EFT. The actual term is ETF and it's again an abbreviation for exchange Traded Funds.