Saturday, May 19, 2012

Investment Basics: What are iShares?

iShares are an investing phenomenon that a lot of people have either never heard about or never personally made any use of. Interestingly enough, the use of iShares is both easy and potentially very good for your overall portfolio. While they are not necessarily the best thing ever if your life is all about flipping shares, this type of investment carries a lot of the other benefits that stocks tend to have. You would be wise to at least consider taking them into your portfolio.

What are iShares?
Simply put, iShares are a particular brand of ETF that are managed by Blackrock. The interesting part of iShares is that they allow you to have broad market diversification and a low fee structure. Since iShares have low fees and tend to track broad market indices, you can use them as a means of diversifying your investments and limiting your risk of downside.

What? An ETF?
Yes, ETFs are also known as exchange traded funds. An exchange traded fund is a mutual fund that is managed and controlled by a computer program, and avoids the emotions and potential for impropriety that comes from having human beings manage your investments. With an ETF, you can track an entire segment of the stock market, such as the Dow Jones Industrial Average, or even a more carefully selected group such as the most profitable dividend bearing companies.

An ETF's main goal for most investors is to take the indecision out of selecting investments. By owning a small fraction of a large number of stocks, you increase the likelihood that broad positive market movements will buoy your portfolio. At the same time, the large number of stock holdings represented means that when one or two companies have a really bad day, your portfolio will not be hurt with anywhere near the severity you would experience if you owned the companies themselves.

Are iShares Right for Me?
They might be, but they might not be. There is only so much you can decide simply by having a basic understanding of what iShares even are. While you now know the basics, your investment plan is far more complex than simply knowing a few terms and how some people use them. You would be wise to speak with a professional investment advisor before you make a large investment, particularly if your retirement is riding on its success.

iShares are a potentially very good part of your overall portfolio, but they aren't for everyone. You can limit your downside risk and expand your potential gains by investing in iShares, but nothing is guaranteed. When your understanding is solid, iShares may be a strong addition to your portfolio.

About the Author: Natisha Antill is a business studnet who hopes to one day branch into investing. She is currently doing some Stansberry research and wants to know just as much about what does not work in the world of money as she knows about what does work.

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