Critics claim the “temptation effect” is due to the flexibility of an ETF, and that since the fund is readily available to trade, investors will do so. The theory implies investors that wouldn’t normally do so are compelled to trade, since the option exists.
The study found that relative to investors in traditional mutual funds, investors who purchase an ETF are more likely to be male, to be older than 60 or to check their investment balances at least daily. Furthermore, people in this group tend to trade more, regardless of which vehicle they pick.[Vanguard ETF Has Biggest Target Stake Among Dividend Funds]
In close, just because an ETF can trade throughout the day does not mean that investors are going to do so, just because. Typically, if an investor is trading their funds, whether mutual fund or ETF, they would do so no matter what tool they are investing in.
Tisha Guerrero contributed to this article.