Check out this article about the newest type of ETF. Exchange Traded Funds have grown exponentially in popularity over the last decade. Investors like them because they can trade them like individual stocks, but they offer the same diversification as a mutual fund. Although, these funds have typically followed an index like the S&P 500 instead of being actively managed by a fund manager.
Now, a new breed of ETF’s is putting in the human element of managing funds. An ETF provided lower fees, because you weren’t paying for a broker’s commission or fees, but now brokers like Vanguard and Fidelity and put their hot hands on an ETF and still charge a lower fee than the traditional mutual fund.
Here are a list of pros and cons to these funds:
- Trade like individual stocks
- Lower expenses than traditional mutual funds
- More flexibility in your investment
- Higher liquidity
- Good for short-term investments
- Will charge higher expenses than index ETFs
- May not outperform the ETFs that follow an index fund
- Easier to sell and lose out on high earnings
- Bad for long-term investing
My overall take on ETFs is that they are good for short-term investments, because they are so easy to sell and buy. If you use them for long-term investing, you may be more inclined to sell at the wrong time and buy at the wrong time. Timing the market is a very risky and often unprofitable thing to do when investing for the long-term. However, I like the fact that they are putting the human element into some of these funds so they have the potential of earning higher than an average index.
What are your thoughts about ETFs and this new breed of ETFs?