ETFs (Exchange Traded Funds) are a great way for a person to create a diverse portfolio that is built upon passive trading. They have all the wonderful benefits of your normal stock trading like liquidity, low fees, and instant execution. However, they are not the end all, be all of your financial growth. We will give ETF advice on the benefits to ETFs but it’s better than you know some of the flaws that run the risk being drawn in by the promise of ETF investments.
Firstly, they are different from ETNs (Exchange Traded Note). They have a lot of the same feel and features as an ETNs but with a very big difference. ETNs carry more risk than the ETF will. If the company that issued you the ETN files for bankruptcy and goes under..good luck getting that money back. After a company declares bankruptcy you will likely want to get your share money back but you’ll probably have to spend time in bankruptcy court. Additionally, you may have been sold on an ETF due to their ability to be a low-cost investment option but some of them come with much higher fees long term than other options available to you on the market.
One of the great things about ETFs is that they allow you to make moves in a single day. For example, if a certain stock is rising during a single day an investor can purchase an ETF on that stoke and sell it before the end of the day making a profit off o fit in a single day. ETFs allow an investor to do things like speculative trading. For those that don’t know, speculative trading is defined as, “Speculation involves trading a financial instrument involving high risk, in expectation of significant returns. The motive is to take maximum advantage from fluctuations in the market. Description: Speculators are prevalent in the markets where price movements of securities are highly frequent and volatile” ETFs are also great for people that love to save money (and who doesn’t love to save money?). When it comes to helping an investor like yourself ETFs are the way to go. They offer a lot of the same benefits you will see with index funds (defined as “a type of mutual fund with a portfolio constructed to match or track the components of a market index”). ETFs have similar low turnover rates like index funds plus have the benefits of board diversification
One of the reigning reasons that people will choose ETFs over other options is that they are just easier to understand. They are great on costs, have wonderful flexibility and are a great option if you want a low-cost way of dipping your feet into the investment game. As for one final ETF advice, the reason why ETFs can become your go-to: they are very tax friendly. ETfs have lower capital gains compared to mutual funds. Mutual funds pass on their capital gain taxes to the next investor. ETF capital gains are payable when you sell the ETF.