Exchange-traded funds, or ETFs, have proliferated in recent years, and their basic features—low cost, tax advantages and immediate liquidity—have made them extremely useful for allocating investments across diverse asset classes. Since the first ETF emerged in 1993, the universe of these funds has expanded to hundreds of choices. ETFs are:
Good tools for diversification. Most ETFs are built around indexes tracking the performance of groups of investments. Some are broad, focusing on large- or small-cap growth or value stocks, for example. Others let you invest in specific industries such as energy or health care, countries or regions, commodities, or types of bonds. A portfolio mixing and matching ETFs can ensure that your investments are well diversified.
Flexible and transparent. It’s easy to move in and out of ETFs, because they trade just as individual stocks do. And with most ETFs, you can know exactly what the fund’s underlying investments are.
Less costly and more tax efficient than index mutual funds. ETFs offer some of the same benefits as index funds but often have much lower costs and an advantageous tax structure. ETF investors do have to pay trading costs, but that makes ETFs ideal for long-term investors who can buy and hold with regular rebalancing.
To learn more about the growing world of ETFs and their role in investment strategies, please call our firm.