The information provided through etfbuzz ranges from the very basic to highly complex. For individuals new to ETFs, we’re here to help navigate this exciting and innovative industry.

ETFs are easy to understand. They are simply bundles of stocks, bonds, or other assets (including commodities, currencies, and real estate) that track an index and trade throughout the day on a stock exchange, providing investors with the ability to continuously monitor their investments. Many ETFs track well known indexes such as the S&P 500 or Dow Jones Industrials. This allows investors to know exactly what they’re invested in, making it easier to develop sound investment strategies and providing an effective way to adapt to current market changes.

The innovative structure of ETFs provides the potential for significant advantages over other investment vehicles such as mutual funds. Potential advantages include:

• Lower costs - The average yearly expense that actively managed mutual funds charge is approximately 1.45% of assets. With ETFs, because they simply track an index and don’t have to pay a high-priced fund manager, the average yearly expense is only 0.29%.
• Lower taxes – Because of the unique ETF structure, ETFs do not distribute the amount of capital gains that mutual funds distribute. In 2008, even with market declines, mutual funds on average distributed approximately 3% of their net asset value in capital gains distributions to investors.
• More transparent - Mutual funds only disclose their holdings four times a year, so it’s hard to see if an investment strategy is on track or even understand what is owned. ETFs are required to make their holdings available every day, so investors always know exactly what they’re invested in.
• Passively managed - Index-based ETFs are considered to be passively managed because they track an index without the direction or intervention of an active manager. Research has shown that index-based funds consistently outperform actively managed mutual funds.
• More diversification – Investors are realizing alternative assets, such as gold and other commodities, provide diversification and the chance of better returns than a portfolio of stocks and bonds alone. ETFs are becoming the investment vehicle of choice for gaining this broad diversification.