Why ETFs?

We love ETFs. Here’s why

1)     They are accessible to all investors.

ETFs require no minimum investment, most other investment vehicles do, sometimes with huge minimums. There are two ways to buy an ETF 1) through an online broker, or 2) through an advisor. The online broker route is simple to set up and some of them even offer no commission trading on ETFs and no account minimums. If you already work with an advisor, they will be able to buy an ETF on your behalf.

2)     Lower fees.

ETFs generally have lower fees than mutual funds. There are a few reasons for this. The creation/redemption process is complicated but it’s really what allows ETFs to charge less. The process leads to greater tax efficiency for ETFs. ETF.com has a great explanation if you want to know more.

Buying and selling ETFs is a relatively simple process compared to mutual funds. ETF transactions go through a broker so ETF shares are bought from, and sold to, other ETF investors on a stock exchange.

Mutual fund transactions ultimately go through the fund company and there is a lot of paper work, record keeping, compliance issues and the buying/selling of underlying securities by the fund company. This process gets expensive.

3)     The process of buying and selling should be easy.

The fact that ETFs are trading on an exchange means you can by and sell at any time during market hours, and you have a very good idea of what price you are going to get. Mutual funds are only priced at the end of the day, other investment vehicles can be prices weekly or monthly, meaning you have to put in your order, then wait for the next day, or longer, to access your money.  

4)     They are transparent.

When an ETF tracks an index and uses a rules-based trading algorithm, it is easy to see what the ETF is holding at any time, how the ETF is expected to behave, and see the full back-tested history of the index. This allows investors and advisors to get a good idea of what the investment experience will be like and to make an informed decision on whether the ETF is a good fit.