What are ETFs?
Buying ETFs is an inexpensive and effective way to purchase a large index of stocks. You could think of them as reflecting an underlying asset or mix of assets. At FutureAdvisor, we build client portfolios from ETFs that track stock and bond indices because of those low costs, since low costs are the best indicator of better performance.
ETFs Mean Diversification
ETFs give you the trading convenience of stocks alongside the diversified risk of an index fund (which exposes you to all stocks in a given market).
If you choose well, ETF fees can be as low as 0.05% a year, depending on asset class. That's not 5%. That's 5% of 1% -- two orders of magnitude lower than most mutual funds.
At FutureAdvisor, we use reputable ETF providers like Vanguard, iShares and Schwab to create portfolios for our clients.
|Vanguard S&P 500 ETF (Ticker: VOO)||0.05%|
|iShares Trust Core MSCI EAFE ETF (Ticker: IEFA)||0.14%|
|iShares Core MSCI Emerging Markets ETF (Ticker: IEMG)||0.18%|
|Vanguard Total Bond Market ETF (Ticker: BND)||0.08%|
Sample low-fee ETFs - as of October, 2014
ETFs & Retirement Investing
ETFs are widely considered to be a positive development in investing. They can offer liquidity, transparency, and cost and tax benefits over certain investment alternatives.
Like any investment vehicle, however, their benefits depend on your portfolio strategy and the ETF in question. At FutureAdvisor, we believe a set of low-cost index ETFs can be a great way to invest for retirement. But certain leveraged ETFs can be quite risky. While they may make sense for certain investors, we don't use them.
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ETFs are growing rapidly, with many of the larger funds containing billions of dollars of investments.
Unlike mutual funds, they can be bought and sold whenever the market is open. In addition, certain ETFs can be traded commission-free at certain brokerages, lowering their costs even further.
ETFs are the flexible building blocks of a portfolio that will change over time. If you're curious about how ETFs could help your retirement goals, FutureAdvisor offers free recommendations that could help you get on course for your retirement goals.