ETFs

Ok, so today I'm gonna give my 2 cents on ETFs: what they are and why I think they are very beneficial.

To start off, ETF stands for exchange traded fund. It is essentially the exact same thing as a mutual fund, but it can be traded throughout the day, whereas a mutual fund is priced and redeemed or bought after the market closes.

ETFs generally make diversification pretty easy, have low expenses, and are tax efficient. Because ETFs can be bought, held, and sold cheaper than mutual funds, some investors invest in ETF shares as a long-term investment for asset allocation purposes, while other investors trade ETF shares frequently to implement market timing investment strategies. There are several advantages of ETFs, I'll list a couple below:

1. Lower costs - ETFs generally have lower costs than other investment products because most ETFs are not actively managed and because they don't have the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. ETFs have lower marketing, distribution, and accounting expenses, and most ETFs do not have 12b-1 fees (these are just another management fee mutual funds have). All in all, they are considerably cheaper. Most charge b/w .10%-.25% whereas mutual funds are usually around 1.5%, considerably more expensive.
   
2. Buying and selling flexibility - ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds, which can only be traded at the end of the trading day. As publicly traded securities, their shares can be purchased and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade. That is beneficial b/c you can set a price on an order and if teh ETF hits that price it will be bought in your account without you having to constantly watch the price every day.
   
3. Tax efficiency - ETFs have lower capital gains, b/c they usually have low turnover of their stocks or bonds (turnover is when a fund buys/sells holdings). While this is an advantage they share with other index funds, their tax efficiency is further enhanced because they do not have to sell securities to meet investor redemptions, which occurs when an investor sells a large holding and the fund has to liquidate to generate the cash.
   
4. Market exposure and diversification - ETFs provide an economical way to rebalance portfolios and asset allocations and to use cash by investing it quickly. The majority of the ETFs out there track or mirror an index, like the S&P or the Dow, but recently actively managed ETFs have grown in popularity. There is a great website, etfconnect.com, in which you can search for ETFs of all types. ETFs offer exposure to a diverse variety of markets, including broad-based indexes, broad-based international and country-specific indexes, industry sector-specific indexes, bond indexes, and commodities. Do a search and find one that is appealing to you. For instance, if you are interested in clean, renewable energy and companies that produce that, you may look at investing in PBW, a Powershares Clean Energy ETF.
   
5. Transparency - ETFs, whether index funds or actively managed, have transparent portfolios and are priced at frequent intervals throughout the trading day.

These are some reasons I like and recommend ETFs. As always do a little research on your own and form an opinion as to whether you might be interested in them.