Which ETF is right for you?
Exchange-traded funds, ETFs, are a major part of the global securities market. Investors like these vehicles because they are cost-effective and are generally free of loan fees and other penalties. They also trade throughout the day. An ETF can be a very useful part of your portfolio, but you’ll need to know a few things before you start investing.
It’s cheaper to invest in an exchange-traded fund from one of the big players, like BlackRock, State Street or Vanguard. Costs don’t go up very much for these massive firms with exchange-traded funds, even if revenue does increase. That means that they can offer large ETFs that cover a wide range of the market at a low cost. And when you’re picking out an ETF, as with any investment, you want the lowest cost you can find.
If you’re looking to fill up a core asset, then it’s best to go with the major players. The cost will be lower, and you’ll gain more exposure across the market. That will save you some money.
Don’t discount the minor league players. Despite having a higher cost, they are still able to compete fairly well with mutual funds. And they cover specific and exotic parts of the market – something you won’t find with the majors.
If you need to fill a small space in your portfolio, and want to branch out to nontraditional investments, go with a smaller firm offering exchange-traded funds. Keep in mind that the cost will be higher, and you’ll be taking on more risk with these investments.
As always, it’s important to do your research before you start investing. Consider not only the cost of the ETF, but the market it covers and the risk involved.