Long term investors and partially hands off investors – do I have a solution for you! As we all know, diversification is key to steady growth and income.
One of the most common ways to have had plenty of diversification in your portfolio were mutual funds. As you’ll see, I am not at all a fan of mutual funds, and as a matter of fact feel extremely strongly for people to STOP investing in them for various reasons.
However, ETF’s Trading (exchange traded funds) are the greatest invention when it comes to investing! Since they started trading on the open market they have grown to insane proportions.
1. ETF’s are baskets of different stocks in anything you want: Indices, sectors, industries, bonds, dividend stocks, REIT’s, precious metals, commodities, foreign markets, foreign currencies and so much more! Just like Mutual funds.
2. You can trade ETF’s in real time just like a stock during market hours. Unlike Mutual funds which you can only close out the deal at the end of the day. Plus, if you’re mutual fund has a certain time period if you get out early you might have to either pay a fine or a bigger management fee.
3. No front load, back load or any fees that aren’t already built into the price of each ETF. Unlike mutual funds which come with fees and on top of that, surprise fees.
4. Super low expense fee! You do have to pay for the trade commission. But the same for most mutual funds, unless you buy it directly from the company distributing them.
5. There are no minimum amounts necessary for initial investments. You can buy one share of 5000 shares of an ETF fund. For most mutual funds you need to enter with a minimum amount ranging from $500 to $10,000 to $25,000.
6. They are more tax efficient than mutual funds.
These are just some of the reasons why ETF’s are a must have! If you can’t decide on which ones to buy and are working with a full service broker, your financial manager can help.
Stuck on mutual funds – a lot of financial managers, for some strange reason (payback maybe), are stuck on mutual funds. So the grand answer to that is:
Take your financial managers advice and then find out the equivalent of the mutual fund as an ETF fund. And instead of getting suckered into a fund you might not be able to unload for two to five years, the same exact ETF can be traded whenever you feel like it.
NOTE: Practically every single mutual fund on the market has an equivalent ETF so don’t listen to anyone who says otherwise. If they are pushing a mutual fund too strongly that means they are definitely working on a fee basis with the fund manager.