The Top Four Benefits of ETF Investing
Finance Tips Over the last decade, ETFs have garnered a lot of attention and praise from the finance world. Here's why you should consider them in your portfolio.
Whether or not you’re new to the world of investing, it’s a good bet that you’ve heard of ETFs. Exchange-traded funds are a basket of securities that track a particular index and trade on an exchange. Over the last decade, they’ve garnered a lot of attention and praise from financial experts and amateur investors alike — and for good reason.
Thanks to a variety of factors like cost and transparency, ETFs are offering real competition to traditional stocks and bonds, and most notably, to mutual funds, the investment they most resemble. Jeff Weniger is a CFA charterholder and Asset Allocation Strategist for WisdomTree Asset Management, Inc, a global provider of exchange-traded funds. Here, he shares what he believes are the four main benefits of ETFs.
1. Intraday liquidity
“The development of ETFs came about for a few reasons, but one of the main ones was a demand from investors for intraday liquidity to a basket of securities, which you couldn’t have with a mutual fund structure,” he says. The mutual fund structure meant the price of the fund wasn’t set until the end of the day, at 4 pm Eastern Standard Time, posing a major issue for investors who were exposed to the fluctuations of price movement that could occur between the decision to trade and the actual execution.
2. Tax implications
Though taxes can be a major downside of mutual funds, the opposite is true for ETFs. “An ETF is more tax-friendly because investors are on the hook for their own tax liabilities, whereas sometimes with mutual funds, current holders actually have to pay the tax incurred from money made by prior investors,” Weniger says.
“Another issue with mutual funds is that they don’t have full transparency,” he says. “You could invest in a mutual fund and not actually know what you own because mutual fund holdings are usually released on a quarterly basis. However, because ETFs are traded on an exchange and holdings are published daily, you can go to the fund’s website and see immediately what exact holdings make up the fund and how it’s doing right down to the penny.”
4. Lower fees
Due to generally lower management expense ratios (MERs), ETFs usually cost less to manage than other investments, explains Weniger. “These lower fees have been a complete game changer in money management. The ETF market has been taking over globally. There’s not a year that goes by where ETFs have not chipped into the market share of the mutual fund industry.”
It’s clear why Weniger is so passionate about ETFs. “I think for all of us at WisdomTree, we believe in what we’re doing. We help save our clients a lot of money,” he says. This dedication to working with a client-first approach is a popular approach as the industry continues to grow. “It’s one of those things where it’s nice to wake up and realize that you’re confident in what you’re doing for a living and that you’re providing a service that helps people.”
WisdomTree’s innovations don’t just stop with their client experience; they also offer a Modern Alpha™ ETF methodology that provides a thoughtful, research-driven approach to managing ETFs. Talk to your financial advisor to see if a WisdomTree ETF is right for your portfolio.