When you think about all these things, they sure make ETFs sound appealing, don’t they? Here are five things that make ETFs superior:
1. Transparency. When you buy an ETF, you always know what you own. The holdings of any given ETF are easy to locate and are posted daily. There are no secrets or surprises here.
2. Diversification. ETFs are a basket of stocks – rather than having to rely on guessing about which company is going to be the winner in a given industry, you can just buy a fund that represents the entire sector and spread the risk around a little.
3. Ease of Use. Information about ETFs, their expenses, their holdings, their weightings and charting is easily and readily available, as well as simple to understand. This doesn’t mean that using ETFs doesn’t involve some education, but this education is easy to acquire.
4. Inexpensive. Not all ETFs are dirt-cheap, but on the average, the fees are lower. That’s because typical ETFs lack an active manager. However, some actively managed ETFs are coming in cheaper than their mutual fund counterparts.
5. Tax-Efficiency. Capital gains payouts are rare, and since ETFs don’t sell their holdings to meet redemptions, other capital gains issues are avoided.
For more stories on mutual funds, visit our mutual fund category.