Low-cost risk management is a newer concept that ETFs have contributed to many portfolios. Since an ETF trades similar to a single stock, an investor can place a stop loss on one to avoid excessive downside risk. The average ETF costs anywhere from 0.05% to 0.65% , compared to a traditional mutual fund that generally costs at least 1.0%.
Brokerage fees can add up when trading ETFs, so investors should keep their number of trades low. Every trade is a transaction that costs money, so it is important to keep trades to a minimum to avoid excessive fees. [ETFs Vs. Index Funds]
Tax efficiency can be a result of low portfolio turnover. Since many ETFs are buy-and-hold products, the tax impact is much less than what a traditional mutual fund incurs. Investors that hold capital in taxable accounts can really benefit from this feature, Fabian said.
Tisha Guerrero contributed to this article.
