The Power of the ETF

For decades, the mutual fund was king and investors searching for relatively inexpensive diversification would use these investment pools as a great way to spread risk with the benefits of professional portfolio management. Today we have some new, less expensive and more flexible tools available to retail investors. The ETF, or Exchange Traded Fund, looks and acts like a mutual fund (known as a “plain vanilla” in Wall Street parlance) but has some very unique characteristics.
The most distinct difference is that an ETF can be bought or sold at anytime during the trading day whereas a mutual fund can only be bought or sold at the end of the trading day. As a benefit to long-term investors, an ETF will usually have less turn-over than a mutual fund which can help lower the end-of-year tax bill. Another bonus is that an ETF will usually have a much lower annual expense ratio (typically .50%) than a mutual fund (typically 1.50%). If you can get the same no-load index fund for more than -1.00% cheaper per year, that can add up to serious savings over the long term!
Specialty ETF’s have also added investment tools that were not available to retail investors in the past. New funds have recently been set up to allow access to commodities (such as gold), currencies (such as euros), and international stocks. In the past, these types of alternative investments were only available to well-healed hedge fund investors with $1 mil+ of liquidity or veteran traders willing to open expensive commodity and currency trading accounts on margin.
ETF’s are one of the greatest modern breakthroughs for investment management tools to emerge in the past decade. Please feel free to contact me to discuss investment opportunities in these exciting new products.

Michael T. Maloney, CFP®
845-300-8282