STOCKS & ETFS TRADING
ETFs trade throughout the day just like stocks, whereas mutual funds can be purchased only at the end of the day.
Some ETFs provide access to broad segments of the market, while others focus on hard to reach niches.
Although management expenses for ETFs tend to be very low, you may pay a brokerage commission for every transaction.
Although exchange traded funds (ETFs) have been around for over two decades, in recent years interest in them has increased. Assets in ETFs have more than tripled since 2008, to well over $2 trillion in 2017, according to the Investment Company Institute, an investment fund trade group.
ETFs are exactly what their name suggests funds that trade on an exchange just like stocks. As with regular mutual funds, ETFs own baskets of stocks, bonds or other holdings. Both mutual funds and ETFs can take a passive approach to investing by tracking market indexes, but ETFs offer distinctive differences that set them apart from mutual funds, particularly in terms of tax efficiency, costs and transparency about their holdings.
Consider these six characteristics when determining whether ETFs might play a role in your portfolio. Bridge Road Capital Management ETFs, will help simplify your ETF investing experience.
ETFs tend to have low management expenses.
Most ETFs are index funds that aim to mimic the performance of certain benchmarks ETFs tend to have low expense ratios, with some charging less than 0.1%.
ETFs are more tax efficient than typical mutual funds.
There are two ways ETF investors incur tax liabilities:
ETFs provide a clear, ongoing view of their holdings.
Since ETFs report their holdings on a daily basis, investors have full transparency about their investments. This lets you know more about the details of your investments and could make you aware of possible risks, such as overexposure to certain market sectors or companies.
ETFs provide convenient, immediate diversification.
Holding a broad variety of investments can help diversify the risk of a portfolio. Buying just one ETF can give you a stake in hundreds of stocks or bonds. An international ETF, for example, could broaden your portfolio with stock holdings from around the world, while a bond ETF might span much of the investment grade market. Mutual funds may give you the same type of diversification, but the advantages of ETFs mentioned above may make them a more attractive option for some investors.
ETFs make it easier to gain access to very specialised investments.
For example ETFs have made it much more convenient to own precious metals such as gold, silver, platinum and palladium, because with an ETF investors don't have to take physical delivery of the commodity.
ETFs can fill specialised niches in your stock portfolio.
The proliferation of ETFs has brought with it specialised funds that reach all corners of the financial markets. ETFs may enable you to invest according to:
Market sectors such as energy or property
Characteristics for example, dividend paying stocks
Geography, with a regional or country focus
As these characteristics suggest, ETFs can play many roles in an investment portfolio.
Broad ETFs might serve as core holdings
More specialised funds may fill particular niches
Investors have increasingly been using ETFs to provide complete portfolio solutions
Whether you use ETFs, mutual funds or individual stocks and bonds to build your portfolio, it is crucial to begin by taking the time to evaluate your goals and risk tolerance to come up with the right target asset allocation. Then you can consider whether ETFs meet your particular needs.