Here are the main advantages of ETFs, especially when compared to mutual funds:
1. Diversification
Most ETFs track a broad range of assets. ETFs give you exposure to a variety of market segments with the convenience of not having to buy up individual stocks.
2. Easy-to-Trade
ETFs trade like a stock and can be instantly bought and sold with the click of a mouse. ETFs can be purchased on margin and sold short. ETFs trade on the open market and prices are updated throughout the day. ETFs allow you to manage risk by trading futures and options like a stock. Since ETFs trade like a stock, it’s easy to look up daily price changes using their ticker symbols.
3. Lower Fees
By buying passively managed ETFs, you’ll be paying a lot less fees compared to actively managed mutual funds. The reason being mutual funds charge not only higher commissions and a management fee, but there’s shareholder accounting expenses, marketing service fees, fees for sale and distribution, etc. Most ETFs are passively managed and this is the reason why they usually carry lower fees.
Sven Franssen