Exchange traded funds can be used for various investing styles due to their flexibility and simplicity. However, financial advisors want investors to know how ETFs can be most efficient and when to consider other options.
“You could do all of your investing with the 1,000 or so ETFs, most of which use index-style strategies rather than active management. It’d very easy taking just a few clicks of the mouse with your online-broker – just like trading a stock. Fees are extraordinarily low and ETFs can be very kind come tax time,” Jeff Brown wrote for CNBC. [More Financial Advisors Using ETFs for Core Holdings]
Many financial advisors like ETFs and use them in their client portfolios. However, the need for more ETF education is evident, especially as more ETFs continue to hit the market with complex strategies. Advisors want investors to know when to use ETFs and when another tool may be more efficient. [Financial Advisors Fuel ETF Growth: Report]
Day traders and short term investors love ETFs for the tradability. They allow investors to move in and out of stocks seamlessly, any time of the day. Investors can also short sell and use options with ETFs, a feature that is not available with a mutual fund. [ETFs and Efficient Markets]
Long term investors can benefit from the low cost of an ETF even more, since they are employing a buy-and-hold strategy that will not incur extra brokerage fees. Day traders do risk incurring higher costs due to brokerage costs with each trade of an ETF.
ETFs are generally passively managed, meaning they track a selected index and hopefully match or exceed the returns of the selected stocks. A mutual fund does give investors the expertise of analysts and managers that will search for stocks and bonds which will generate alpha, reports Brown.