If you are thinking of investing in the top ETFs, then congratulations! You are definitely on the right track because it is crucial to diversify your investments. When you truly want to make your money work for you, putting some eggs in the exchange-traded funds is a sound choice because of low management fees, abundant liquidity, a wide array of investment choices, minimal investment threshold, and more.
With this type of securities at your disposal, you can better navigate the risks and rewards which come part and parcel with investing. Still not convinced, read on to see why ETFs are considered better than their so-called cousins, the mutual funds. Take note of the four known advantages of ETFs:
Assures Diversification
Diversification is an amazing investing tool that allows you to prevent capital erosion. When you put all your eggs in one basket, all the eggs become broken if you drop that basket. However, if you spread out the eggs in different baskets, the other baskets are safe if one falls.
In the same token, investing in the top ETFs assures you can purchase a basket of assets or shares in a single trade. Hence, you can diversify readily within one asset class. On top of that, an ETF assures you can put your money in assets or markets that are otherwise expensive or difficult to enter alone. You can also opt to diversify across ETFs, so you take fewer risks in case one ETF provider suffers a collapse.
Leverage Informed Choices With Transparency
With an ETF, you can see the Net Asset Value or NAV. This NAV calculation is vital as it signifies how much is the worth or value of one share. These NAV figures are published daily, so you can track the numbers:
- You can analyze how your underlying asset is performing.
- Check if the ETF price is close to the NAV.
- You can compare it to see and evaluate the performance of different funds.
Apart from the NAV, the ETF also releases the following (if applicable) for transparency:
- Current daily holdings
- Outstanding shares
- Amount of cash
- Accrued dividends
All of these details allow ETF investors to make an informed decision. All investments have risks, but you minimize these risks with information. Indeed, knowledge is power.
Easy to Trade
It is very easy to buy and sell ETFs during trading hours. This fund has diversification advantages while giving you the trading liquidity of equity. You can purchase them on margin and sell short. The trading price is also updated throughout a market day, unlike a mutual fund which is only priced when the day ends.
Furthermore, an ETF allows you to handle risk well by giving you a chance to trade futures and options akin to a stock. Because of this, you can readily search for the daily price changes and make comparisons. You also get the advantage of an easy interface with charts that you can manipulate and use on your tablet or smartphone.
Enjoy Low Costs
Most ETFs possess a low MER or management expense ratio. Hence, they are cheaper than actively managed mutual funds. Mutual funds tend to have high costs because of steep management fees, service fees, load fees, and so on. In contrast, ETFs are passively managed, so you can enjoy a lower expense ratio. With this, you get more mileage out of your money.
Clearly, ETFs are a good investment choice as they tend to be low-risk and low-cost. It also allows you to hold different securities and a basket of stocks, which assures diversification. If you want to build up your portfolio, ETF is certainly an ideal asset type that deserves attention and a spot in your investment strategy.
