Benefits of Exchange-traded Funds (ETFs)

Benefits of Exchange-traded Funds (ETFs)

 



1.      They provide diversification

The foundation you need for growing wealth over time. By owning a fund that holds hundreds or even thousands of individual investments, you can benefit from market growth without taking a big risk through any one investment. That’s why investing in broad market funds is one of the smartest things you can do.

 

2.     Lower operating costs.

ETFs tend to have lower operating costs than traditional open-end mutual funds, because they don't need salespeople or expensive marketing campaigns. Many ETFs are index funds by nature, and so their management fees are much lower than that of actively managed funds.

 

3.     Flexible trading.

Unlike traditional mutual funds, which settle only once per day after the market closes, ETFs trade like stocks and can be bought and sold throughout the day at intra-day prices. They are also more liquid than traditional mutual funds, as they are traded in large quantities on exchanges throughout the day.

 

4.     Greater transparency.

ETFs are required to disclose their holdings publicly on a daily basis, whereas traditional mutual fund companies only have to disclose their holdings quarterly or annually.

 

5.     Better tax efficiency in taxable accounts.

Most ETFs employ an efficient creation/redemption mechanism that allows them to minimize capital gains distributions (and thereby taxes) when compared with traditional open-end funds that employ less efficient creation/redemption processes.

 

6.     ETFs require minimum time commitment.

You can buy them every month, quarterly or whenever is best for you. They are well-suited for an automatic investment plan, or Dollar Cost Averaging, and you can buy them every month. The best part about it? It’s proven that investing in broad market funds is more likely to increase your chances of positive performance than picking individual stocks.


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