Exchange traded funds continue to increase in number and popularity, growing to one of the most commonly traded securities on the stock exchange as both institutional and the average retail investor gain greater access to broad or specialized market exposure. Yet many individuals are unfamiliar with ETFs’ inner workings. In this ongoing series, we hope to address your questions and help shed light on the investment vehicle. [What is an ETF? — Part 16: Inverse and Leverage Funds]
ETFs help keep investment portfolio costs down. Consequently, investors are beginning to see the benefits of including ETFs in their retirement portfolios as the next logical step.
Mutual funds dominate the retirement 401(k) plans industry, but more investors are beginning to realize that the cost saving aspects ETFs have on non-retirement portfolios may also be used in 401(k)s.
ETFs do not come with redemption and management fees that many mutual funds require. As such the ETF industry has an average expense ratio of 0.55%.
Moreover, mutual funds held in 401(k)s tend to have higher fees than open end funds outside of 401(k)s – the securities traded are a a special R-Shares class of funds.