You say you want a revolution, and it’s here in the form of exchange traded funds (ETFs). Dig down into the reasons why ETFs are superior to stocks and mutual funds, and you’ll find more than enough to love.
Are you still scratching your head while single stock-picking? Or are you paying massive fees for a poor-performing mutual fund? Read on to see why ETFs rock:
1. ETFs are diversified. One ETF, dozens or hundreds of stocks. Where else can you get that kind of exposure without lopping off an arm, leg or both?
2. With ETFs, you can spice it up. If you find a straight fund too bland, perhaps a leveraged fund is more your speed. There’s no need to buy on margin; you can buy a leveraged ETF just as you would any other ETF. But caveat emptor; these ETFs have risks you need to understand before you buy. [All About Leveraged and Inverse ETFs.]
3. ETFs are transparent. It’s 2 a.m.; do you know what’s in your ETF? Well, you can find out by going to the provider’s page or other sites such as Yahoo! Finance or Morningstar. Now, go back to bed.
4. You can sell an ETF whenever you want. That is, when the markets are open. Mutual funds are priced once a day, at the end of the day. ETFs are continually priced and you can trade them just like you would a stock.
5. ETFs go hand-in-hand with a trend following strategy. Mutual funds tend to have investment minimums and early redemption fees that can leave your portfolio hurting if you don’t want to buy and hold. ETFs have no such restrictions, making them an ideal companion for a simple strategy. Be careful, though, and watch those commissions. [The Merits of Trend Following.]