For instance, those who regularly withdraw $1,000 from an ETF position on a monthly basis at a cost of $9.95 per trade could end up losing 1% each time. However, there are now a number of commission-free ETFs that may be traded across a number of brokerages, including Fidelity, TD Ameritrade, Charles Schwab, E*Trade, Vanguard and Merrill Lynch, among others. [Six Popular Commission-Free ETF Trading Platforms]
The commission-free ETF trades allow investors to make regular portfolio rebalances, monthly investments or monthly withdrawals at no extra cost.
Additionally, Nathan Kubik, a Certified Investment Management Analyst at Carnick & Kubik, argues that ETFs offer tax advantages over mutual funds. Due to the way ETFs are constructed, ETFs are able to exchange holdings through in-kind transactions, which limit taxable events, whereas mutual funds typically have to sell into cash and owe taxes on the capital gain before acquiring another position. [Popular Commission-Free ETFs on Schwab OneSource]
Kubik also advises investors to take a closer look at ETFs before converting over from their mutual fund investments. For instance, potential ETF investors should be aware that most offerings passively track an index, whereas many people are invested in active mutual funds. Traders should watch overall feels, which include expense ratios, commissions and trading costs. Investors should not expect some kind of magic bullet and make sure that ETFs fit their investment horizons.
For more information on investing in ETFs, visit our ETF 101 category.
Max Chen contributed to this article.