Exchange Traded Funds, or ETFs as they’re commonly referred to, are a recent investment innovation that has revolutionized investing and helped to greatly expand the availability of choices for investors. They also provide the allow for more diversification and liquidity which serve to level the playing field for individual investors Commonly utilized to fund summer student loans.
ETFs are a hybrid investment that offers the following benefits:
1. Low Cost: Index funds have lower expense rations than mutual funds. This is particularly true of mutual funds that charge front-end and/ or back-end fees.
2. Tradeability: Because ETFs trade like stocks, they have obvious advantages over mutual funds. For example, you can buy or sell ETFs in the middle of the day at a price of your liking rather than waiting for the price at the close of the market.
3. Diversification : There are a large variety of assets classes that can be bought and sold with ETFs. For example, you can buy ETFs that are indexes of popular averages such as the S&P 500. You can also purchase, commodities, real estate and even ETFs that are short a variety of markets.
4. Transparency : The holdings of ETFs are transparent and because they are priced throughout the day, you can track their current value.
5. Tax-Efficiency : Unlike mutual funds which can pay out capital gains while you own them, ETFs do not make such payments. Instead, you only pay capital gains taxes if you sell the ETF.