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Exchange Traded Funds Investing

January 6, 2012 12 Comments

Investing is one of the necessary ways in which one grows their money through placing funds in growth accounts and holdings such as dividend stocks, bonds, real estate, gold and even commodities. Though some people opt to hold on to cash reserves for emergencies, to make your money grow and thus work harder for you in comparison to simple savings accounts, using an assortment of investing vehicles to create a diversified portfolio is the best approach to helping create a long-term investment strategy that will pay off in higher return rates over time, and thus increase net worth and financial health and well-being.

One of the most comprehensive investment vehicles is referred to as an ETF which stands for Exchange traded Funds. This holding is a collection of stocks, bonds and commodities. This type of fund trades on the open market, in the same manner as individual stocks and is thus subject to market volatility. The crux of an ETF is that the price per share is high, and one must be approved to trade such shares of the fund as individual investors with low trading dollar volume typically are not allowed to trade ETF’s as participation must be offered and approved prior to being able to reap rewards of such funds. ETF’s are typically reserved for institutional investors who have block trade buying and selling ability on the market.

Individual investors able to trade ETF’s must understand that even though they appear to be formulated in the same manner as a mutual fund, with a mix of asset holdings, an ETF can be traded multiple times throughout the day and thus the price fluctuates along with the rest of the market. In contrast, mutual funds, which also have roughly the same mix of financial holdings, are valued and priced once per day and thus have more stability when compared to an ETF. ETF trading is a good option for aggressive traders hoping to have high growth and higher risk investments in their overall and total portfolio.

So which do you think is the safer and more stable route? ETF or Mutual Funds?

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Comments

  1. Sustainable PF says

    January 6, 2012 at 4:23 pm

    We are 100% ETF. I had MFs for a long time until I realized the MER was killing my portfolio growth.

    Reply
  2. krantcents says

    January 6, 2012 at 6:46 pm

    I have both. I don’t think one is safer than the other. Some people like the fact you can trade ETFs like stock, I have not used that aspect.

    Reply
  3. Miss T @ Prairie Eco-Thrifter says

    January 6, 2012 at 9:15 pm

    We too like ETF’s. They are much easier to manage and cost you less in fees.

    Reply
  4. Corey @ Passive Income to Retire says

    January 6, 2012 at 11:37 pm

    I have been reading more about ETF’s lately. I am thinking about it and probably will incorporate them into my portfolio soon. 🙂

    Reply
  5. funancials says

    January 7, 2012 at 4:03 pm

    Mutual Funds, in theory, are better. Who wouldn’t want the professional management that a mutual fund provide? Unfortunately, 3/4 of mutual funds underperform the index. The question is – how confident are you in your ability to find this 25% that will outperform? You can’t, because as we know, past performance doesn’t guarantee future results. Stick w/ the index.

    Reply
  6. Paul @ The Frugal Toad says

    January 7, 2012 at 10:25 pm

    I prefer mutual funds. If you do your research you can find low cost funds that perform better than the market averages. I have been with Vanguard for years and have not found anyone who can beat their offerings and their low fees. You can really hurt your performance with ETFs if you trade them too much as you incur fees for each transaction.

    Reply
  7. Jen @ Master the Art of Saving says

    January 9, 2012 at 6:38 am

    I don’t have either one yet, I really need to learn more about investing soon. 🙁

    Reply
  8. John@MoneyPrinciple says

    January 9, 2012 at 9:04 pm

    This high frequency trading is the way of ratcheting up income. It uses the natural frequencies of the market. This is due to the way people come into and get out of a particular stock or fund and the technologies they use. They can be upset but generally analysis of past trades in a particular stock will be reasonably consistent for the near future.

    For analysis, think fourier or better look at wavelets. Computing power now is available that will pick out the likely frequency as a function of the short term spread.

    The only reservation is that the fees – low per trade – will soon mount up if you are trading many times a day. And you have to keep on top of the trades so are presumably glued to the screen all day. So if I were ever to be tempted, I think I would stick to a managed mutual although that is only a theoretical possibility at the moment! 🙂

    Reply
  9. Neo says

    January 10, 2012 at 12:18 am

    I have both in my portfolio, my 401k only offers mutual funds and I also have index mutual funds in my Vanguard account. My ETFs are in a brokerage account as well and allow me to get in and out of exposures quickly. However, I agree with Krantcents, neither is “safer” they just have a few different characteristics. One thing though is that ETFs and mutual funds come in both active and passive form, and I only really invest in passive funds (except in my 401k).

    Reply
  10. Shaun @ Money Cactus says

    January 10, 2012 at 12:25 pm

    The only shares I have at the moment are in my managed retirement fund and these include mutual funds. Relatively safe investment vehicle, but I wouldn’t mind investigating some other options like ETF’s as well.

    Reply
  11. YFS says

    January 10, 2012 at 10:28 pm

    I like ETF’s over mutual funds. Once you add in the fact that you can treat ETF’s like stocks and option them you have a very very safe investment on your hands.

    Reply
  12. Oren says

    February 7, 2012 at 3:27 pm

    I have both ETFs and MFs and I like them both. I tend to put more money into MFs and less into ETFs and only invest in the commission free ones, like the ones through Charles Schwab and Fidelity.

    Reply

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