Copyright 2006 Equitrend, Inc.
Many investors still don't know about Exchange
Traded Funds (or ETFs) and their advantages over traditional mutual funds. In this article, we'll examine Exchange
Traded Funds, their history, performance and advantages and why you should
never buy a mutual fund again.
ETF 101
Exchange Traded Funds can most accurately be
described as the happy marriage of a stock with a mutual fund.
Like mutual funds, when an investor buys an
ETF, he is buying a pool of securities at one time. For instance, an ETF known as DIA, or
"Diamonds." allows the investor to take a position in the Dow Jones
Industrial Average.
Like a stock, an ETF can be purchased through a
brokerage account, can be traded throughout the day, can be bought on margin
and offers stock-like trading features such as limit orders, stop orders and
short selling
ETFs come in many different flavors. They track all the major indexes like the
Dow, S&P 500, NASDAQ 100, Russell 2000 and others. They're also available for investors who want
to trade sectors like energy, technology, precious metals, financial, health
care, emerging markets, interest rates and many more.
Introduced over 12 years ago, ETFs were
initially mostly used by professional traders, but in recent years, have
experienced rapid growth as a popular investment vehicle with public investors.
ETFs have gained such widespread acceptance and
popularity because they provide significant advantages over mutual funds. The advantages of ETFs include:
--Continuous
pricing throughout the day compared to end-of-day pricing for mutual funds
--Can
be sold short like a stock which isn،¦t
possible with mutual funds
--Can
be bought on margin
--Can
use limit and stop orders so you can exit or enter during the trading day
--Have
lower expenses than mutual funds and no management fees
Adding it all up, it's easy to see why Exchange
Traded Funds have been growing at a rate of nearly 50% per year since 1993.
Conclusion:
It's easy to see why Exchange Traded Funds have
steadily grown in popularity over the last twelve years. By combining the benefits of a mutual fund
with the benefits of a stock, they really do offer investors an optimum
combination of flexibility and potential profit.
Of course, the large mutual fund companies
don't like ETFs but have had to adjust to their new popularity and so many fund
families have introduced ETFs of their own in recent years.
For investors, ETFs offer considerable
advantages of flexibility, cost and diversity, and therefore, you should never
buy a mutual fund again.
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