In the Wall Street Journal, Jonathan Clements argues exchange traded funds are not as cheap as they look.  His point is that there are transaction costs associated with buying and selling ETFs. No kidding. Hopefully most investors understand that (like buying and selling stocks) it’s all part of investing.

This article does remind us it is important to take a look at our own investments and decide what strategy works best for our own goals and objectives.

  • Lower expense ratios – yes ETFs have a lower annual expense than index mutual funds, but with commissions and trading spreads, Clements says you would only get the savings if you were to hold on to the investment for 5 years.  Of course this would depend on the amount you are investing, your time frame and alternative options.
  • Alternatives – ETF offerings (and more to launch) give investors options that mutual funds just don’t offer.  One example is iShares MSCI EAFE Value (EFV), there are no index mutual funds available that track international value.  And the expense is 0.4%, less than expenses on many actively traded funds.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.