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[E357]Exchange Traded Funds Mutual Funds

by Jill Kane, Jil

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

1. 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.

2. 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.

3. 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.

4. 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, it is not without risk, so consult with your Financial Professional before investing, especially if you have a taxed account.

Many investors still don't know about Exchange Traded Funds (or ETFs) and their advantages over traditional mutual funds. In this article, we'll examine Exchange Traded Funds, their history, performance and advantages and why you should never buy a mutual fund again.

ETF 101

Exchange Traded Funds can most accurately be described as the happy marriage of a stock with a mutual fund.

Like mutual funds, when an investor buys an ETF, he is buying a pool of securities at one time. For instance, an ETF known as DIA, or "Diamonds." allows the investor to take a position in the Dow Jones Industrial Average.

Like a stock, an ETF can be purchased through a brokerage account, can be traded throughout the day, can be bought on margin and offers stock-like trading features such as limit orders, stop orders and short selling

ETFs come in many different flavors. They track all the major indexes like the Dow, S&P 500, NASDAQ 100, Russell 2000 and others. They're also available for investors who want to trade sectors like energy, technology, precious metals, financial, health care, emerging markets, interest rates and many more.

Introduced over 12 years ago, ETFs were initially mostly used by professional traders, but in recent years, have experienced rapid growth as a popular investment vehicle with public investors.

ETFs have gained such widespread acceptance and popularity because they provide significant advantages over mutual funds. The advantages of ETFs include:

--Continuous pricing throughout the day compared to end-of-day pricing for mutual funds

--Can be sold short like a stock which isn??t possible with mutual funds

--Can be bought on margin

--Can use limit and stop orders so you can exit or enter during the trading day

--Have lower expenses than mutual funds and no management fees

Adding it all up, it's easy to see why Exchange Traded Funds have been growing at a rate of nearly 50% per year since 1993.

Conclusion:

It's easy to see why Exchange Traded Funds have steadily grown in popularity over the last twelve years. By combining the benefits of a mutual fund with the benefits of a stock, they really do offer investors an optimum combination of flexibility and potential profit.

Of course, the large mutual fund companies don't like ETFs but have had to adjust to their new popularity and so many fund families have introduced ETFs of their own in recent years.

For investors, ETFs offer considerable advantages of flexibility, cost and diversity, and therefore, you should never buy a mutual fund again.

Article Source : Pg. 5

About Author

Both Jill Kane & John M. Mcclure are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Jill Kane has sinced written about articles on various topics from Credit Cards, Finances and Dental Practice. . Jill Kane's top article generates over 18100 views. to your Favourites.

John M. Mcclure has sinced written about articles on various topics from Property Guide, Best Mutual Funds and Stock. John M. McClure is CEO and President of EquiTrend Inc., a stock market timing system that averages 42% profits per year. Mr. McClure is also a Registered Investment Advisor and President of the National Association of Active Investment Managers.. John M. Mcclure's top article generates over 2900 views. to your Favourites.