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- When I first started investing more than ten years ago, I invested most of my assets in mutual funds.
- Over time, my strategy has shifted from focusing on mutual funds to focusing on exchange traded funds (ETFs).
- Although ETFs and mutual funds are similar in most respects, some major benefits make ETFs a better choice for ordinary investors.
- On the one hand, ETFs provide more liquidity. In addition, ETFs have lower fees than mutual funds, and there are many options to choose from.
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An exchange traded fund (ETF) is a popular investment fund. When you buy ETF stocks, your funds will be combined with other investors̵
I started investing in my second year of university graduation (2008). In the early days of my investment, I invested most of the long-term investment funds in mutual funds. But in the past few years, I have been shifting this strategy to a strategy focused on ETFs.
ETFs are an excellent investment choice and are becoming four important reasons for an increasing share of my family’s investment portfolio.
ETF provides instant liquidity
Mutual funds have a long history. The first modern mutual fund in the United States was founded in 1924. For nearly 100 years, investors have been using their funds for large-scale investments. Until the 1970s, almost all mutual funds were actively managed investment funds. In 1976, John Bogle of the Vanguard Group made an unpopular decision to create the first index fund. But apart from how to manage investments, the rules are almost the same.
After the market is closed, all mutual fund transactions are conducted once a day. On the other hand, ETFs are traded throughout the day like stocks. If you want to sell an investment in a hurry, you can click the “Sell” button and execute the transaction almost immediately during market trading hours when using ETF investment. If you have a mutual fund, you must wait until the end of the day to sell the order.
ETF fees are usually lower than mutual funds
Mutual funds can charge loading fees, which are fees when you buy and sell fund shares. In addition, mutual foundations charge an annual fee as a percentage of your investment. The annual cost of an actively managed fund (called the expense ratio) is usually about 0.5% to 1%, although it can sometimes exceed 2%.
According to Vanguard, the industry average mutual fund expense ratio is 0.63%. This is driven down by low-cost index mutual funds, which follow market indexes such as the S&P 500.
Like stocks, you can trade ETFs without commissions in most major brokerage firms. No loading fees are charged when buying and selling. There are still expense ratios, but they tend to be much lower than mutual funds.
According to Vanguard, the industry average expense ratio is 0.23%. This is about one-third of the average mutual fund. You may not pay three times more for similar cars or household appliances. Why would you pay three times more for similar investments? I know I won’t.
More and more ETFs to choose from
When I started investing in 2008, there were about 8,000 mutual funds in the United States and only 700 ETFs. Statista data shows that the number of mutual funds has not changed much, but there are now more than 2,000 ETFs to choose from.
Since I entered the market, the number of ETFs has more than tripled, and now there is a fund that can meet almost any investment method, goal or demand. Although the number of ETFs is still less than that of mutual funds, there are enough options to meet your needs, such as mine.
You can use ETFs for almost any investment objective
You can buy ETFs that follow almost any index, commodity, precious metal, currency, asset allocation and even other choices.
There are ETFs that follow the market and ETFs that are opposite to the market. There are very low risk ETFs and very high risk ETFs. It does not matter whether you are an active trader or a passive investor. In 2020 and beyond, you can certainly create the right ETF portfolio according to your needs, without feeling lacking because there is no mutual fund.
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