ETFs allow you to invest in different stock indices.
A stock index is a published number that tracks the value and price changes of a specific set of stocks. Widely followed stock indices are the S&P 500, Dow Jones Industrial Average and the Nasdaq 100. There are hundreds of other stock indices that track different sectors of the stock markets, domestic and foreign. It is not possible to invest directly in a stock index, but exchange traded funds were designed specifically to allow investors the invest in the value of specific stock indices.
Instructions
1. Determine the stock indices in which you want to invest. The most popular indices for ETF investing are the S&P 500, MSCI Emerging Markets Index, MSCI EAFE Index and the Nasdaq 100. You may also find other indices that fit your investment goals.
2. Find the symbols for corresponding exchange traded funds--ETFs--on your selected stock indices. ETF symbols can be located through the ETF browser at Yahoo Finance, the Data section of the Index Universe website, or the website of the individual stock indices. For example, Standard & Poor's provides a link to the ETF on the information page of each of its stock indices.
3. Look up the current share prices of your selected ETFs. Here is a listing of the symbols of the five largest stock index ETFs:
SPDR S&P 500, symbol SPY.
iShares MCSI Emerging Markets Index Fund, symbol EEM.
iShares MSCI EAFE Index Fund, symbol EFA.
PowerShares QQQ, symbol QQQQ.
iShares Russell 2000 Index Fund: IWM.
4. Buy the shares of your selected stock index ETFs through your stock brokerage account. If you do not have an account you can open and fund an account through an online discount broker. The Smart Money magazine 2010 Broker Survey ranks the online brokers.
