The size of the ETF industry has led to the creation of an ETF from every sector, country, currency and corner of the market imaginable. This allows investors to create personalized portfolios with core holdings and satellite funds for targeted asset allocation. The transparency of an ETF makes correct asset allocation easy since the construction of the underlying index the fund is tracking is always disclosed. [How Investors Are Using ETFs]
ETFs also tout lower fees compared to actively managed mutual funds. The lower the fee of an investment, the more capital there is left to preserve. More and more sponsors are lowering fees, and some offer free trades for in-house brokerages. But buyer beware, low fees do not mean the best possible product. A low fee should not be the deciding factor in selecting an ETF. [Cost Matters with ETFs: Vanguard Report]
The overall liquidity of an ETF is important because this allows investors to access their money at any time, in real time. There are no restrictions on trading, short-term redemption fees, back end sales loads, redemption windows, or other roadblock that will prevent you from making a withdrawal from an ETF, reports Fabian. A small trading commission applies to selling, however, no other fund allows an investor such easy access to their own capital. [How ETFs Have Helped the Average Investor]
Tisha Guerrero contributed to this article.