Industry experts explain how to make exchange-traded funds, otherwise known as ETFs, sound investment values that you can add to your personal portfolio.
"This will help to ensure that they get the price they ask for and prevent them from transacting at a price they might not like," he said.ETFs are fully transparent, said Tom Lydon, vice chairman with VettaFi.
"They frequently update their holdings, so investors know exactly what they are getting themselves into," he said.Also, Lydon explained that ETFs are more tax efficient than traditional open-end funds. Due to structural differences, said Lydon, ETFs do not incur a capital gains tax like how mutual funds would, but still come with a capital gains tax upon the sale of the ETF by an investor.
"Some of the key selling points of ETFs beyond traditional open-end funds may include things like lower expense ratios, flexible intraday trading, transparent nature and improved tax efficiency for taxable accounts," Lydon said.Finally, unlike mutual funds that are bought and sold once per day after the market closes, ETFs trade all day long.
"If you are familiar with trading individual company stocks on a brokerage platform, then picking up an ETF should be a similar experience," continued Lydon. Furthermore, he said more knowledgeable investors may also utilize various trade orders for executing ETF trades, including limit orders and stop-limit orders, along with short selling, to better manage their investment experience.
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