Four advantages of ETFs

The very first exchange traded fund (ETF) in existence was the Standard & Poors (S&P) Depository Receipts (SPDRs) that tracked the US S&P 500 stock index.  It’s still in existence today. The popularity of this investment vehicle grew tremendously after the inception of the SPDR.  ETFs are described as investment companies that are classified in the legal world as open-end companies or unit investment trust.  However, they differ in the way that they are traded.  ETFs shares are issued in large blocks that are sometimes called creation units and can be bought or sold with securities instead of cash.  An easy advantage of this system is that investors can trade the individual shares on the secondary market whenever the market is open.

Experts consider ETFs to have lots of advantages over the more traditional mutual funds.  The first considerable advantage is that ETFS can offer potential investors with a great deal of liquity. High liquidity is very desirable because investors are able to trade the ETFs in the stock market whenever they want.  In comparison, mutual funds can only be traded at the close of the market.  A second advantage is a kind of built-in process of ETFs that lets investors save on their taxes to the government by delaying the capital gain up to the end to pay for redemption.  A third advantage is that ETFs can charge very low annual fees in comparison to the fees that can be levied by mutual fund companies.  A fourth advantage of ETFs is that it offers investors the ability to invest in individual industry sectors, such as an crude oil etf or copper etf.

Overall, investors have loved ETFs because they consider them to be a very efficient way to maintain a portfolio over the long haul, especially for investors that consider themselves the 'buy and hold' type.