ETFs: New Wave or Riptide?

There was an excellent article discussing the pros and cons of investing in Exchange Traded Funds (ETFs) on July 3 Wall Street Journal: As ETFs Find niches place risks (unfortunately, the Wall Street Journal does not allow us to link to your articles, maybe that will change after Rupert Murdoch buying Dow Jones.) There are over 500 million dollars invested in Exchange Traded Funds and I think they replace any index funds or variable capital strength of these funds to reduce costs. A victory for investors. Exchange Traded Funds are generally lower expenses, index mutual funds. You pay a commission to buy or sell, as a action, but the Commission may be less than the rate charged by your insurance or funds to purchase a mutual fund (consider the class of shares you buy). Sold, exchanged and timing, not the end of the day with investment funds of indefinite duration.

ETFs are excellent Vehicle Tracking different types of investment. Want to invest abroad? In raw materials? Buying Exchange Traded Funds. (Do not be fooled, there are index funds are most of the indices that ETFs).

So it's not to love about Exchange Traded Funds? To return to the article in the Wall Street Journal, Lipper, which tracks the performance the fund, said a disproportionate number of ETFs has proven losers (misinterpretation) list. For some it is simply a case of a narrow track margin and unstable, nanotechnology, example. The lesson here is that investors should consider the riskiness of the investment they make. A decrease Traded Fund not the risk of a technology, volatile raw materials, stock or emerging country. What good do not reflect sound performance index that is designed to continue.

Like most new products and Exchange Traded Funds are a new product, so there will be product-specific risks. Some do not follow their index behind due to an error or a portfolio too narrow. The costs are not automatically less turnover and taxes are certain issues and to mitigate those risks stick with exchange-traded funds issued by well-known institutions.

Vanguard, the godfather of index funds, has joined the Foundation and will be much more. (See When not a door, a door to more of what John Bogle, founder of Vanguard, think of them.) Action of art is perhaps the best evidence to date the increase in the ETF.

Morality is to examine history ever Exchange Traded Funds to consider an index fund or if you want a low cost and liquid way to win exposure to a particular type of investment. Remember that this does not reduce the risk of the kind of investment.

About the Author

Bill Byrnes is co-founder of MUTUALdecision, a website providing mutual fund data, and the author of the MUTUALdecision Blog. He’s been an investment banker with Alex. Brown & Sons and a Finance Professor at Georgetown University. He’s been CEO, chairman and served on the board of directors of several public and private companies. He holds MBA and JD degrees and is a Chartered Financial Analyst with over 30 years experience in the investment industry.

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