Seductive Facts That Make ETF Different From Other Investments
Which are the factors an investor should consider before opting for ETFs?
There are many ways to make money from stock markets. The people who are experts in dealing with stocks tend to invest in stocks directly through their brokerages. With them having the expertise in the field and willingness to learn every day, they can make a mark in direct stock investment.
Constant research and updating oneself is the main requirement before venturing into stock investment. People who don’t have time or willingness to learn more about the methods of stock markets can approach some financial experts to plan their future course of investment.
Because expertise is required to choose the right stock. A stock market expert can guide you to select the apt one depending on your priorities with investment. If you want to invest for a longer period, they will suggest the top stocks for such investments. On the other hand, if you are looking to make quick returns, the experts can pick some stocks that are trending and making money in a short period.
From whatever we suggested so far, you might have already realized that expertise is required to make a mark in stock market investments. Similarly, if you have doubts regarding your chances of making money from direct investment in stocks, you can adopt the indirect approach. That is putting your money in stocks by trusting the expertise of a group of financial managers.
They are fund managers and will pick the right stock at the right time for making sure that the investor gets his returns correctly. There are several instances where the selection of fund managers went wrong as well. That is expected because the stock markets behave strangely sometimes and it is difficult for even experts to predict the market mood correctly.
Considering such a scenario, you can look to approach the mutual funds or exchange-traded funds (ETFs) for making your entry a remarkable one in stock markets. So, let’s go through the advantages and disadvantages of preferring ETFs as an investment option for you. Which are the points you should be aware of before selecting ETFs? Let’s find out now.
Similarities and differences
We can say that both mutual funds and exchange-traded funds (ETFs) have a lot in common. Both funds consist of a mix of different assets. However, there are differences as well, considering the way both funds are managed. You can trade ETFs like stocks but you can buy mutual funds at end of each trading day on a calculated price only. Though there are passive mutual funds as well, many of the mutual funds are very actively managed by fund managers. The fund manager will take the decision to buy or sell a particular stock depending upon the already established norms for the market. On the other hand, ETFs are passively managed and usually function on the basis of a particular market index. Mutual funds usually charge higher fees and their expense ratios are comparatively higher than ETFs. It means that you as an investor will have to pay more to buy mutual funds. Besides the minimum investment requirement is higher for mutual funds when compared with the requirement for ETFs. If you want to buy Vanguard 500 Index Investor Fund, the minimum investment requirement is $3,000. At the same time, the initial investment requirement for The Growth Fund of America is $250.
For example, the Vanguard 500 Index Investor Fund requires a $3,000 minimum investment, while The Growth Fund of America offered by American Funds requires a $250 initial deposit. When it comes to a mutual fund, the buy and sale take place directly between investors and the funds. You can get the actual price of the net asset value by the end of the day only.
What’s your option?
You can enter ETFs with low fees or a commission and the shares can be bought or sold throughout the day, like the way you can with an individual stock. ETFs also provides tax advantages to investors. ETFs and index funds often realize fewer capital gains than actively managed mutual funds.
Evaluating all these options, you can go ahead with the purchase of ETFs or mutual funds because both offer investors different types of value, protection and returns. Again you have to choose the correct funds, be it ETF or mutual fund, because there are many ETFs and MFs that are losing propositions.