Exchange-Traded Funds Are An Interesting
Alternative To Mutual Funds Submitted By: Jill Kane Exchange-traded
funds (or EFT for short) have recently become a more and more
interesting alternative to classic mutual funds. As of today,
there are over 175 EFTs accumulating over 200 billion dollars
- and these numbers are growing. While it is improbable for EFT
to completely supersede classic mutual funds (at least in the
near future), they are an interesting alternative and probably
a must-have in every beginners portfolio. What is EFT?
Basically, an exchange-traded fund is a
fund made of a portfolio of stocks from a single market. The portfolio
is composed based on an index, industry sector or (more rarely)
a country the companies are tied to. There are many stocks in
each EFT portfolio, so the risk of the losses is roughly the same
as in case of mutual funds. However, the expenses are tied thus
keeping EFT funds from going much lower, and the fees charged
by EFTs are minimal, giving investors additional income. What's
more, EFTs trade like stock, making life easier both for investors
and fund managers.
Benefits Low fees The most obvious strong
point of EFTs is their low fees. While lowering them to such levels
as 0.2% a year may look like magic, it is completely normal -
due to the fact that all the stocks are tied to some single slice
of the market, the funds can reduce the amount of money spent
on market analyses. Lower taxes Unlike mutual funds, exchange-traded
funds distribute nothing but a dividend from time to time, so
there are few reasons to get taxed.
They're transparent You can check real-time
what your EFT is actually doing with your money, while mutual
funds report their holdings only twice a year. Extra trading opportunities
EFTs are sold just like normal stocks, thus creating many different
trading options. Stop-loss and limit orders are but one of many
opportunities available only to stock trading.Switching to EFT
Switching to exchange-traded funds is relatively easy on tax-free
accounts, such as IRA (Individual Retirement Account), where you
simply cease to invest in mutual funds or stocks and start buying
EFTs. However, when we're speaking about taxable accounts, you
will have to make a switch only a little at a time to ease the
taxation burden on your revenue.Remember that while Exchange-traded
funds are an excellent investing opportunity, Click
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