Sunday, March 4, 2012

Check out ETF competition

Still getting confused on how to invest in an ETF? You might need more information on the industry before deciding to do so. You may have consulted your ETF dictionary, checked out your portfolio, and did a little soul-searching on where to invest. But if you still feel unsatisfied with what you know, the next thing to do to be sure is checking out the competition.

They may have same stocks and have offers on easy diversification, but in a way, there is subtle differences between exchange-traded funds and index funds which can affect long-term returns. Try checking out the tax efficiency of ETFs. The tax event for ETF shareholders exists after selling shares with a profit, after that, you’ll start paying for the capital gains taxes.

Basically, ETF investors have lesser exposure to capital gains taxes compared to mutual fund stockholders. This is due to the frequent “buying and selling” of fund holdings by fund manager who ask the investors to pick up the tab. On occasion, ETFs shift shares which is much less than mutual funds. ETFs annual expenses range from 0.1% to 0.65% which is normally deducted from index mutual funds, and dividends.

But for those who have limited funds say, $1,000, ETFs provide a cheap entrée. This is available through discounts on brokerage account that allows you to buy a single measly share depending on your choice. Unlike many index mutual funds, they require high initial balance to enter their stocks. If not, they charge you with higher fees.

And the very reason why ETF is a good choice is that…. It’s easy to buy and it’s easy to trade and trade and trade.