
INNOVATION
R&D: A long-term investment
See why long term investment strategies should factor in research and development. A company's R&D strategy may lead to durability and better returns.
If you're like many investors, you’re probably somewhat familiar with ETFs. You may even own ETF shares in one of your brokerage or retirement accounts. But that doesn’t mean you don’t still have questions about ETF investing basics, and how much of a role they could play in your long-term investment planning and your portfolio. The following are a few of the most common questions investors ask us about.
The NAV of an ETF is an accounting value assigned to each share of the fund. It’s calculated by adding up the value of all assets in the fund, subtracting any liabilities, and then dividing that amount by the total number of shares outstanding.
An ETF’s market price is simply the price at which shares can be bought or sold during trading hours. It’s a reflection of the highest price at which buyers are willing to purchase shares and the lowest price at which sellers are willing to sell them.
For most ETFs (especially those like the Invesco QQQ ETF which is actively traded 1), those two values are nearly identical. Occasionally, though, there may be small differences between the market closing price for an ETF and its NAV. This is usually the result of a supply and demand imbalance where there’s a spread in price between what sellers demand and what buyers are willing to pay. Again, this is most often seen in ETFs that trade a lower daily volume of shares.
Since, like stocks, ETFs trade on a secondary market, you can place all the same types of trade orders you might use for stock trading. These include:
As discussed above, an ETF’s market price is the price at which you’re able to buy or sell shares on an exchange. Generally, the market price is expressed as two separate prices: a ‘bid price’ which is the price buyers are willing to pay; and an ‘ask price’ which represents the price that sellers are willing to accept for their shares. While closely linked to the NAV, the market price can be impacted not only by supply and demand, but by global events that occur before or after the U.S. exchanges are open for business.
In many cases, the answer to this ETF investment question is a resounding yes. For individual investors who are seeking a well-diversified portfolio for the long term, ETFs that track major indexes may provide an easy way to obtain broad investment diversification through a single holding. They typically entail far less cost and expense compared to having to purchase shares of multiple stocks. And in some cases, they are more affordable and tax-efficient than their mutual fund brethren.
[1] Source: Bloomberg L.P., 2nd most traded ETF in the US based on average daily volume traded, as of June 30, 2021.
Select the option that best describes you, or view the QQQ Product Details to take a deeper dive.
R&D: A long-term investment
See why long term investment strategies should factor in research and development. A company's R&D strategy may lead to durability and better returns.
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Learn why ETF can be a smart investment choice and why Invesco QQQ provides a great way to invest in innovative companies.
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Low cost: Since ordinary brokerage commissions apply for each ETF buy and sell transaction, frequent trading activity may increase the cost of ETFs.
Investors should be aware of the material differences between mutual funds and ETFs. ETFs generally have lower expenses than actively managed mutual funds due to their different management styles. Most ETFs are passively managed and are structured to track an index, whereas many mutual funds are actively managed and thus have higher management fees. Unlike ETFs, actively managed mutual funds have the ability react to market changes and the potential to outperform a stated benchmark. Since ordinary brokerage commissions apply for each ETF buy and sell transaction, frequent trading activity may increase the cost of ETFs. ETFs can be traded throughout the day, whereas, mutual funds are traded only once a day. While extreme market conditions could result in illiquidity for ETFs. Typically, they are still more liquid than most traditional mutual funds because they trade on exchanges. Investors should talk with their financial professional regarding their situation before investing.
Invesco does not offer tax advice. Investors should consult their own tax professionals for information regarding their own tax situations. While it is not Invesco's intention, there is no guarantee that a Fund will not distribute capital gains to its shareholders.