Advantages to EFT trading:

  • The risks are not as high with ETFs because they are designed to follow, rather than outperform, an index.  In addition, they do not commonly need to be managed aggressively.
  • ETFs are usually more affordable than other kinds of investment vehicles. Since each trade involved only one transaction, the commissions are not as high and so you will be paying less fees that with regular mutual funds.
  • Due to the way the trade is structured, there is a lower taxation of capital gains for ETFs than for mutual funds.
  • As opposed to mutual funds, the taxation of individual capital gains for ETFs does not occur until the entire fund has been sold.
  • Another tool with ETFs that can help with risk-management for your portfolio is that most ETFs list options and futures contracts.

Disadvantages to ETF trading:

  • You will need to do your research to keep your costs down by finding those investments with a low expense ratio. There are some EFTs that cost more and some that cost less and you want to be thorough when researching to make sure you don't let your expenses go higher than they should.  This should be standard for any type of investment.
  • Even considering the fact that there is generally less expense with ETFs as compared to other types of investments, it can become expensive due to the fees paid to your brokerage every time you buy or sell an ETF.

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