However, since ETFs track an underlying index, investors will most likely see a larger return on their investment over a longer period. Some ETFs are close-ended and, therefore, carry extra management fees (known as the ETF’s expense ratio). Also, if you are actively trading ETFs, make sure to include commissions in your cost calculations, as even when trading is commission free, you must be aware of the bid-ask spread. Be aware of all related costs before purchasing an ETF. And when it comes to trading fees, ETFs are cost-efficient. When you buy or sell an index basket, you would potentially pay commissions on each individual stock trade within it. The same goes for mutual funds. When you buy or sell an ETF, it’s one trade—one transaction. And while ETFs have expense ratios and management fees, they generally tend to be lower than those of mutual funds. For example, the Vanguard Information Technology ETF (VGT) has an expense ratio of just 0.10%—just $10 per $10,000 invested. The beauty of ETFs is that they are easy to buy and easy to trade. To buy an ETF, all you need is an online broker. ETFs, for the most part, are liquid and trade openly during market hours. However, that doesn’t mean you should just jump in the ETF waters without considering the factors that may or may not make these investments the right choice for your portfolio. If you like to play the market, hedge your risk, or even invest in foreign sectors, then you might consider buying an ETF. Exchange-traded funds are getting more popular by the day and the selection has never been higher for good reason. Consider your options, and then buy the best ETFs for your portfolio.
