When shopping around for an ETF to buy, it is important to consider all the costs and any drawbacks before picking out the right match.
“You’re faced with obvious, explicit costs such as the expense ratio. But that’s just the tip of the iceberg. Implicit and opportunity costs can also have a material impact on an ETF’s ability to help you achieve your desired investment outcomes,” American Century Investments said on InvestmentNews.
“Understanding the full range of costs associated with owning a particular ETF may help you make better-informed decisions about which one will suit your needs,” American Century Investments added.
For starters, ETF investors can immediately determine the explicit cost, which include the fund fees or annual expense as well as transaction costs when trading the ETF through your brokerage.
Additionally, there are other costs that can not be immediately spelled out for you. For example, implicit costs that are somewhat hidden in nature include capital gains and portfolio turnover, which have a material impact on overall returns over time.
Related: Steps to Take Before Selecting a Smart Beta Bond ETF