Investing in an exchange-traded fund (ETF) offers an easy way to diversify your portfolio without selecting hundreds of companies you want to invest in individually. Each fund has a different objective and portfolio composition. Investors with higher risk tolerances and the desire for high gains may want to consider investing in the ARK Innovation ETF (NYSE: ARKK).
The ARK Innovation ETF invests primarily in companies that profit primarily from the development of new services, products and advancement of scientific research. Some of the fund's top holdings include Tesla (NASDAQ: TSLA), Square (NASDAQ: SQ) and Roku (NASDAQ: ROKU). This guide will reveal how to buy shares and delve into the pros and cons.
Steps to Buying ARK Innovation ETF
Investors looking to get exposure to a fund that focuses on innovative companies can perform these steps to get started.
Pick a Brokerage
As an individual retail investor, you cannot buy and sell shares of stock directly from the companies that issue them. Instead, you'll need to open an account with a broker before you begin trading. A broker provides you with access to a trading platform that you can use to buy and sell shares of stock. Your broker is responsible for carrying out orders that you place through its trading application.
Since shares trade on the New York Stock Exchange, nearly every broker you can open an account with will allow you to buy and sell shares of this fund. This means that you can afford to get picky and take some time to choose the best broker for your needs. Some of the characteristics and qualities you might want to compare when you decide where you'd like to open your account include:
If a broker charges commissions on trades, it means that you'll pay a small fee each time you place a buy or sell order through your brokerage platform. Though not every broker charges commissions, make sure you're familiar with each broker's commission schedule before you open an account.
Similar to commissions, not every broker charges account maintenance or management fees. However, know all the fees you should pay to open an account with a particular broker.
Mobile Platform Access
Do you need to monitor your investments on the go? You may want to choose a native mobile or tablet application.
Platform Tools and Resources
Different brokers design their platforms for investors of different skill levels. You might want to search for a broker that offers access to a wider range of educational tools and guides and a straightforward platform. If this isn't your first time investing in the stock market, you might want to select a broker that advertises a larger wealth of investing analysis tools.
Decide How Many Shares You Want
After you open and fund your account, you can invest in the high-growth fund. One of the first decisions that you'll need to make before you invest is to decide how many shares of stock you want to buy. Take a look at the current market rate of ARK Innovation — the market price is the price that shares of a stock currently trade. The market price changes throughout the day. You may want to track how the market price is changing over time before you choose a price point to buy in.
Set a total budget that you want to use for your investment before calculating how many shares you can purchase. Most brokers will allow you to purchase a fraction of a share with as little as $1, so there is no need to round out the number of shares you're investing in perfectly. Remember to never invest more money in a single asset than you can afford to lose, as the price of any stock or ETF can decrease at any time.
Choose Your Order Type
When you've chosen how many shares of stock you want to buy and you've set an entry price, you can place a buy order through your broker's platform. Most brokers offer multiple types of orders, and the order type that you select will influence when your broker can fill your order and the price you'll pay per share. Some of the most common order types include the following:
- Market order: A market order gets executed as soon as possible at the current market rate. For example, if shares trade at around a price of $40 per share, you'll pay about $40 per share you purchase.
- Limit order: When you place a limit order, you tell your broker that you only want to buy a specific number of shares of stock if you can purchase them at or below a certain price. For example, if shares trade at around $40 a share, you might set a limit order with a limit price of $38 a share. If your broker fills your order at or below a price of $38 per share, they will deposit the shares in your account. If the price of the stock stays above $38 a share, your broker will not execute the order.
Many brokers also offer additional types of buy orders, so do your research before you buy.
Execute Your Trade
After submitting your order to your broker, your broker fills the order according to the specified price and entry instructions. If your broker can fill the order, you'll see your shares in your brokerage account. If your broker cannot fill your order (for example, because the limit price was never reached) they may leave it open for up to 90 days or close the order at the end of the trading day according to your preferences.
Where to Buy ARKK
Not sure where to begin your search? Consider a few of our favorite brokers using the chart below.
ARK Innovation ETF History
ARK Innovation ETF isn't an individual stock. Instead, it's an actively managed ETF, which is a "bundle" of stocks that trade in the same way as a single stock. ARK invests the majority of its assets into companies researching or currently profiting from advancements in technology, fintech operations, DNA technologies and next-generation internet infrastructure.
Following an initial public offering (IPO) in late 2014, ARKK saw its share price remain stable until late 2017 when prices began to break above $20. During the onset of the pandemic in March 2020, share prices compounded in value, eventually reaching a peak price of $159 per share in February 2021.
However, the economy was not kind to ETFs, and the fund fell to around $40 per share in the summer of 2022. The fund experienced what can only be described as a steady descent to its levels in the summer of 2022, and investors are likely buying at the dip or waiting for the fund to recover.
Remember, too, that ARK is managed by Cathie Wood, a name in the financial sector that moves the meter. When she talks, people listen. Therefore, her funds could move differently from others because she is so public about her thoughts on the financial sector and various assets.
Pros to Buying ARKK
ARK Innovation has recently received a large amount of media coverage thanks to its investments in online infrastructure, which saw major interest during the onset and aftermath of the COVID-19 pandemic. Some of ARKK's top holdings are in Square, Teladoc Health and Shopify, all of which have seen increased investor interest as business and daily life moves largely online.
Additional investments in tech powerhouses like Tesla, Baidu Inc. and most recently, DraftKings pushed the stock even higher into February of 2021. Shares didn't perform as well in 2022, but the fund tends to outperform market indices during bullish rallies.
Cons to Buying ARKK
The ARK Innovations ETF crashed in 2022, demonstrating the risky proposition of buying overvalued stocks. Many of the fund's assets are leading companies in their fields with plenty of innovation. However, the fund places a stronger emphasis on what corporations can become rather than the current financials. Some of the stocks in the fund lose millions of dollars each quarter and seem far away from generating profitable quarters. These stocks can outperform most companies during bullish markets, but they can also fall the most during bearish cycles.
Should You Invest in ARKK?
An investment in a tech ETF like ARKK can add instant diversification to your portfolio. However, it's important to remember that even a small decrease in the sector the ETF focuses on can result in a loss of your initial investment. ARKK is a high-risk, high-reward fund that is not suitable for every investor. Be sure to thoroughly research some of the top holdings in any ETF you invest in so you fully know what you're getting for your money.
Frequently Asked Questions
Can you make money with ETFs?
You can make a profit by investing in ETFs, but you should budget, do your research and invest carefully because these investments still involve a certain level of risk.
Are ETFs safe?
ETFs are considered a more conservative investment than most, but all investments involve risk.
Will ARKK recover?
ARKK is well off its all-time high. The fund invests in high growth stocks that can comfortably outperform other assets during bullish rallies. It can take a while for ARKK to reclaim its all-time high, but it is possible.