An Exchange Traded Fund (ETF) is a basket of securities that prices throughout the day and trades on a public exchange. ETFs provide diversification with the trading flexibility of stocks. These benefits make ETFs versatile trading and investment vehicles that can be used to help pursue a number of investment objectives. ETF benefits to the investor include:
- Low expenses - Since the majority of ETFs are designed to track an index, most have much lower internal expenses than actively managed mutual funds.
- Diversification - ETFs are typically based on a basket of securities.
- Transparency - Investors can monitor what they own, as ETF providers must disclose the underlying holdings on a daily basis.
- Tax Efficiency - ETFs generally pass on a small amount of capital gains, if any, to investors. However, certain types of ETFs, such as those that invest in small cap stocks or specific sectors, may experience higher turnover and be less tax-efficient than broader-market ETFs.
With the number of ETFs available and the nuances to each, it is important to consult with your Financial Advisor to determine which ETFs may be best suited for your unique situation. Your Financial Advisor is able to answer any questions you may have about ETFs and to explain how they can be used to help you pursue your financial goals.