A Dow ETF allows investors to gain diversified returns from the US stock market by tracking the Dow Jones Industrial Average. ETFs are easy to buy and sell, making them attractive for short-term trading. However, the Dow ETF has downsides, such as vulnerability to price swings and limited diversification. Investors may prefer small- or mid-cap ETFs or an S&P 500 ETF for greater variety.
A Dow ETF is a modern type of fund offering that individual investors can purchase for a chance at diversified gains from the US stock market. The Dow Jones Industrial Average is a major index of American stocks traded on national stock exchanges. Investors using a Dow ETF can achieve gains based on the collective returns of the shares included in Dow over a given holding period.
The exchange traded fund, or ETF, is a new type of fund that is easy to buy and sell. ETFs were significantly developed after mutual funds, which often have a number of limitations, including minimal contributions and less trading flexibility. While ETFs may also have minimal contributions and expense ratios or fees paid to fund managers, they are often traded just like individual stocks, making them attractive to investors looking to engage in short-term trading or invest their money in holdings that they can liquidate in a fraction of a second during the middle of a market day.
As a specific type of ETF, the Dow ETF helps track the returns of stocks on the Dow Jones Index. Other different types of ETFs include currency ETFs, which have holdings based on national currency values, commodity ETFs that offer opportunities to speculate on physical assets, and bond ETFs that make it easier for investors to “buy” corporate or municipal debt. As a niche product, the Dow ETF allows investors to get in on the action wherever this leading US index is headed.
Some financial professionals point out that there are major downsides and risks to investing in Dow ETFs. One of them is that the Dow Jones is vulnerable to huge price swings, posting big gains and losses every day. This is obvious from a casual look at a historical Dow Jones tracking chart.
Another potential disadvantage of the Dow Jones ETF is that the Dow only includes about 30 stocks. Some investors like to diversify much more broadly or get into smaller stocks that have more room to grow. These investors would be better served by looking at small- or mid-cap ETFs that include lower-priced, less-established stocks. For a diversified offering of ETFs on a large-cap market, experts suggest that an ETF based on the S&P 500 will offer investors a greater variety of American stock holdings. On the other hand, some will still want to buy a Dow ETF to experience gains based on this US stock market benchmark, especially during times when the ticker appears to be continuously advancing higher.
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