Many experienced financial advisors recommend using exchange traded funds for the low costs and tax advantages.
There are plenty of advantages when trading ETFs, such as low cost, tax efficiency and easy tradability. But with the good traits also come some dangers such as trading and liquidity issues. Liquidity is one of the biggest concerns with ETF usage due to the flash crash of 2010, reports Dan Jamieson for InvestmentNews.
“Frankly, whether we’re dealing with larger portfolios or smaller ones, our focus is on steering clear of less desirable parts of the market,” Alex Cabot, analyst at Wiley Group said. “Avoiding illiquid ETFs is a basic element in that process.”
A broad-based ETF with plenty of assets under management is a good start for well-rounded, diversified stock market exposure. Advisors also suggest using a fund that has been trading for at least 3 years to ensure liquidity and avoid a fund closure. [Surveying S&P 500 Index ETFs]