ETF Investing: Time To Stay Informed

So, finally you have started making some good money at your job and you would like to invest in the stock market, right? Perhaps you don’t have much interest in spending time to keep an eye on investment graphs; maybe you are not interested in following the Wall Street Journal to get the latest stock tip. In a nutshell, you have no idea about the concept of ‘market maker’ and even you have no intention of finding out, and all you want is to put some money away, to let it grow faster than in a mere savings account. Does it sound similar to your situation? Well, if this depicts your situation then seriously think about ETF investing as an effective option to bank on.

Exchange Traded Funds trading or ETF trading stands as a dependable means in diversifying the portion of your portfolio which you might want to protect from the unstable sways of direct investments in common stocks. Yes, you are correct, ETF investing provides you the flexibility to bet on a sector without determining or thinking much about which stocks in that sector will provide the best yield.

As a matter of fact in the volatile financial market ETFs are certainly a great way to invest meager amount and get a decent return. However, in order to use an ETF investment to your advantage, you need to understand the concept well. You are possibly more conversant with the idea of mutual funds since these are pretty common. In fact ETFs and mutual funds are very similar in many aspects; however there are differences between the two. Unlike mutual funds, ETF trading can be done through an exchange (like NYSE etc). Redemption structure and the tax efficiency are some of the other differences.

ETF investing has some distinct benefits. Let us discuss:

Benefit 1 – ETF trading stands as an attractive investment option because of the intraday pricing. This means ETFs are traded on an active stock exchange so that the sales are almost immediate. This is not particularly based on the price at the close of trading. This means that you can take advantage of daily trading activity.

Benefit 2 - Tax efficiency makes ETF trading a beneficial investment option. The fact is, there are in fact no gains to be distributed when you sell an ETF. But if and when a key portion of the ETF is changed, it may generate the distribution of gains.

Benefit 3 – ETF investing is beneficial because ETFs have much lower fees than mutual funds. ETF is basically a no-load fund; hence you don’t have to pay the redemption fees when it comes to the point of liquidating it and the ongoing management fees are a fraction of the equivalent mutual fund.

Benefit 4 - One more major advantage of ETF trading is the liquidity that it offers. This typically means that you will be able to keep your financial portfolio pretty fair by using the ETFs for the liquid component.

ETF investing is fine when you are climbing up the corporate ladder however as you near retirement (age 50-55), try to move a portion of your funds out of the ETFs and invest into REITs, bond funds, and other more stable investments.