Advantages of ETFs

What Is an ETF?

An ETF, or Exchange Traded Fund is a cross between a security and a mutual fund, combining the trading qualities of a stock with the features of mutual funds. ETFs can incorporate a variety of securities such as stocks, bonds and commodities. They are bought and sold on stock exchanges throughout the day, similar to stocks. 

What Is The Difference Between an ETF and a Mutual Fund?

Both mutual funds and ETFs are money pooled by numerous investors to allow them to access investments they normally would not have access to. The main difference between the two is mutual funds are only traded once a day at a set time. An ETF can be traded at any time during the trading day, just like stocks. They enable investors to have diversified, broad exposure to asset classes in a single transaction. Income generated by the securities in an ETF, such as dividends, interest or capital gains, flows through to the investor so that it maintains its original characteristics.  

The price of an ETF is transparent, and investors can see the price of an ETF throughout the day to make informed investment decisions. Mutual funds do not allow this transparency as they are traded only once a day, and investors do not know the price until the transaction is complete. 

Why Do We Recommend ETFs?

Silver Cedar Wealth Management recommend ETFs as a quality investment as they allow easy diversification of asset types. An ETF portfolio offers a mix of commodities, stocks, and bonds that can be traded quickly and easily to take advantage of fluctuations. Using ETFs, we can build a customisable portfolio that matches your risk tolerance and investment goals. 

What Are the Advantages of ETFs?

Investors who furnish their portfolios with ETFs find the following advantages:

  • Lower cost: In comparison with mutual funds, ETFs boast lower operating costs and management fees. ETFs tracking popular market funds can cost significantly less than the market fund. This means that more of your money is invested and more of your returns are available to you. ETFs are one of the most cost-effective ways to diversify your investment portfolio. 
  • Flexibility: Similar to shares and stocks, investors can trade their ETFs as they wish during market hours. The price of ETFs will fluctuate throughout the day, and they are bought and sold on the market. 
  • Diversification: ETFs allow you to diversify your investments with securities from different industries, sectors, currencies, and countries. ETFs give access to a wide range of asset types and tracker funds. These diversifications can be made quickly in reaction to market fluctuations and current events. There are a number of types of ETFs that are designed with different goals in mind. Some are designed to follow tracker funds; others are designed with specific investment strategies. We can help you to select the best ETFs that work for your investment goals. 
  • Transparency: ETFs are extremely straightforward to understand and transparent in both their holdings and investment objectives. Most ETF providers regularly update their website information to reflect their holdings and investment strategies. This means there are no unforeseen issues with your investment portfolio. 
  • Liquidity: Because ETFs can be bought and sold during trading days, they are an extremely liquid investment choice. Liquid investments are more cost-effective to trade and allow investors to react quickly to opportunity. The more liquid an investment, the easier and more cost-effective it will be to trade. ETFs are open-ended investments, so the number of shares can actually expand and contract based on investor demand.
view pdf

Related Insights