July 26, 2007 at 1:00 pm by Tom Lydon
Exchange traded funds (ETFs) are baskets of stocks that resemble mutual funds but can be actively traded throughout the day like stocks. The baskets focus on different sectors, such as health care or energy, and they track different indexes like the S&P 500 or Russell.
Here are some ways ETFs offer advantages for investors, according to the Courier Post Online:
- ETF structures allow for tax advantages. When you sell a stock within your ETF basket, it’s considered an in-kind trade. In-kind trades do not incur capital gains.
- ETFs have lower expenses and fees because a fund manager isn’t actively managing the ETF.
- ETFs offer exposure to currencies, commodities and precious metals, which were previously difficult market areas to reach.
- More is better: Currently, there are more than 440 ETFs and at least 300 in the pipeline waiting for approval from the Securities and Exchange Commission (SEC).
- ETFs track most major indexes, such as the SPDRs (SPY), and these indexes have outperformed 80% of the actively managed large-cap funds over the last 20 years.
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