Exchange Traded Funds (EFTs) are gaining more prominence in investor's portfolios. Mutual funds are expensive to own or to trade when compared to an EFT since average mutual funds have a 1.5% management fee attached.
Bi-yearly, mutual funds are required to inform investors of their holdings. For the most part, mutual fund purchasers are not aware of what they exactly own. By owning an ETF, you not only know, but get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share, and if you are using a discount broker, buy and sell at a fraction of the cost of a mutual fund. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you pay the same low commission to your broker that you'd pay on any regular equity order.
The first ETF's was the S&P Depository Receipt known as SPDR (exchange symbol SPY). It was basically a stock that owned all 500 companies that make up the S&P 500 Index. So with one trade you could own the whole S&P 500 index.
What makes ETFs unique is that they stay very close to their net asset value. The price of the ETF stock cannot drift too far above or below its actual value because professional traders will push it back in line quickly if they see disparity.
ETFs are liquid in that you can buy and sell them at any time. You can place stop-loss and limit order as protection. You can see the latest quote in real-time.
The expenses to own an ETF is negligible. For instance, fees for SPY (S&P 500 index ETF) are pegged at 0.09 percent.
When you own an ETF you know exactly what you have invested in. There is no surprise in regards to anything mysterious. There is complete transparency.
If there is a choice between mutual funds or ETFs, one should be aware of fund management past history and direction. How do they do in a bear market? How do they perform in a bull market? Do the beat the ETF for the same investment area?
Get financial information with a subscription Investor's Business Daily today. Spot trends before they happen.
Bi-yearly, mutual funds are required to inform investors of their holdings. For the most part, mutual fund purchasers are not aware of what they exactly own. By owning an ETF, you not only know, but get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share, and if you are using a discount broker, buy and sell at a fraction of the cost of a mutual fund. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you pay the same low commission to your broker that you'd pay on any regular equity order.
The first ETF's was the S&P Depository Receipt known as SPDR (exchange symbol SPY). It was basically a stock that owned all 500 companies that make up the S&P 500 Index. So with one trade you could own the whole S&P 500 index.
What makes ETFs unique is that they stay very close to their net asset value. The price of the ETF stock cannot drift too far above or below its actual value because professional traders will push it back in line quickly if they see disparity.
ETFs are liquid in that you can buy and sell them at any time. You can place stop-loss and limit order as protection. You can see the latest quote in real-time.
The expenses to own an ETF is negligible. For instance, fees for SPY (S&P 500 index ETF) are pegged at 0.09 percent.
When you own an ETF you know exactly what you have invested in. There is no surprise in regards to anything mysterious. There is complete transparency.
If there is a choice between mutual funds or ETFs, one should be aware of fund management past history and direction. How do they do in a bear market? How do they perform in a bull market? Do the beat the ETF for the same investment area?
Get financial information with a subscription Investor's Business Daily today. Spot trends before they happen.
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Unknown - Monday, October 29, 2012
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