Over the last 20+ years, ETFs have increasingly become a staple in many people’s portfolios. From an investing and trading perspective, there are a lot of reasons for this. From tradability and tax-efficiency, to diversification and transparency, ETFs can be a great option. Other times, they aren’t the best option. Let’s look at the pros and cons.
For tradability, unlike mutual funds, ETFs can theoretically be traded in and out throughout the day. In fact, there are many people who do day-trade ETFs. The flexibility and liquidity are main reasons why people gravitate towards ETFs. When it comes to tax efficiency, ETFs go through less capital gains than most other options out there. If you want to diversify, ETFs are a great choice as they cover most major asset classes. If transparency is important to you, consider that most ETFs disclose holdings on a daily basis.
Now, a lot of the pros of ETFs can also be cons in some scenarios. For instance, if you hold ETFs too long, there are management fees involved. While they are usually less than those of mutual funds, they’re still there. For liquidity, there are some ETFs that don’t have the volume to be able to liquidate easily, so be aware of this. There’s also a potential for less diversification, as many individual stocks within ETFs have a lot of overlap. While the pros seem to outweigh the cons, you should always be aware of the potential for cons.
If you’re an individual investor that wants to trade, check out The Steady Trader, where there are lots of individual trade alerts and research to tap into. If you have a portfolio and need an investment advisor, visit us at Blue Marlin Advisors and get connected.
What You’ll Learn:
Why ETF’s don’t appeal to some people.
Why ETF’s should be a part of your portfolio.
How ETF’s can help you gain exposure to different markets.
Why you should always check the liquidity of an ETF.
Favorite Quote:
“ETF’s are great products if they’re being treated properly.” -Serge Berger
