You often hear us talk about using mutual funds as an effective way to invest for retirement. They offer a lot of options regardless of your age and budget but since 1993 there’s been a new kid on the block and perhaps it's worthy of your consideration as well.
What are ETF's and should you consider using them?
Here is the definition of ETF and some interesting points about ETF's:
- An ETF, or "exchange-traded fund" is a marketable investment that tracks an index, a commodity, bonds, or a basket of assets like an index fund. The ETF owns the underlying assets (shares of stock, bonds, oil futures, gold bars, foreign currency, etc.) and divides ownership of those assets into shares. In this way, ETFs can be similar to mutual funds, which are also a basket of investments (assets like company stock, bonds, etc.). The primary difference is the way they are traded.
- Many people who invest in mutual funds are investing based on the fund manager.
- The expense ratios for most ETFs are lower than those of the average mutual fund but you will have to pay the same commission to your broker or custodian that you'd pay on any regular order.
- There exists potential for favorable taxation on cash flows generated by the ETF, since capital gains from sales inside the fund are not passed through to shareholders as they commonly are with mutual funds.
- Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.
Next, Rob and Steve tackle listener questions at 800-525-7000 and via email to Questions@MoneyWiseLive.org on a variety of topics:
- If you're no longer with a company with which you once had an 401(k), should you leave the 401(k) where it's at, roll it into an existing IRA or move it to a new IRA?
- If a former employer will be terminating your pension plan and offers either moving the pension into an annuity or a lump-sum distribution, what are the advantages and disadvantages of each?
- Being newly married, living pay-check to pay-check, no emergency fund and around $100000 of student loan debt, should you consider saving via the stock market or just using a savings account?
- With a home appraised at $160000 and a mortgage balance of $1000000, should you consider refinancing your home to pay for some essential home repairs that would total $12000?
- If you once owed a hospital that was forwarded to a collection agency, did your debt get paid by the collection agency?
- What's the difference between the Sound Mind Investing Plan and the Timothy Plan?
- If you're selling a remodeled house for $60000 more than you paid for the house, how do you calculate the tithe including the remodeling costs?
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