Exchange traded funds will not destroy Wall Street, as some may claim, rather they can transform it, and enhance every investor’s experience. ETFs have opened the doors to various market sectors to individual investors, and have made investing possible even for those with limited excess capital.
“The primary advantage that ETFs have is their low-cost structure. By adopting investment strategies that track passive indexes rather than requiring active management, ETFs don’t have to pay as much for frequent trading expenses, and they generally don’t pay managers as much to implement those strategies as they would to come up with their own independent investment ideas,” Dan Caplinger for The Motley Fool wrote. [How to trade ETFs Efficiently]
In today’s investing environment, saving on fees and overhead costs is important, as it preserves initial capital and adds to returns. ETFs are notorious for free or low-cost trades, and usually beat out a comparable mutual funds’ expense ratio. For this trait alone, ETFs are favored over traditional mutual funds, which have been trading for over 35 years, reports Caplinger. Furthermore, ETFs are are funneling mutual fund outflows right into their inflows, and running with them. Long term buy and hold investors benefit the most from a broad-based ETF, with lower fees and low capital gains, they have proven their benefit to investors. [Why Institutional Investors Like ETFs]
“ETFs are far from perfect, but they’ve had a real impact on the way that Wall Street profits from managing your money. By embracing low-cost ETFs, you can keep more of your money for yourself. In a low-return environment, that’s more important than ever,” Caplinger wrote.
Most ETFs do not have a minimum investment required to meet in order to put money into action. This feature has allowed investors who are just starting out to play the stock market, and build up wealth, whereas most mutual funds have heady minimum investment totals required to invest in them. This has allowed individual investors more freedom and potentially let those enter the market who formerly could not without ETFs. [Can ETFs Ever Top Mutual Fund Assets?]
Most of all, ETFs have made hard to access corners of the market available to investors, at a reasonable price. For example, most commodities such as gold or oil were hard for individual investors to gain exposure to. ETFs made investment in this area of the market easy and cost-effective, with choices of hard assets or futures contract-investing available to the masses.
Going forward, ETFs will continue to have a positive impact upon the way people invest and the manner in which Wall Street profits from managing money.
Tisha Guerrero contributed to this article.