Is it just me, or have mutual funds become virtually irrelevant and rarely talked about of least? At least to veteran, seasoned or those in the FIRE movement. To fill the void, ETFs have become all the rage in the world of investing. Exchange Traded Funds (ETFs) are similar to mutual funds, but the big difference is that they trade like stocks, where the price fluctuates throughout the day. The other major difference is that they have lower expense fees in general.
Given their increasing popularity in the last 2 decades, a lot of investors – both active and casual – have been shifting more and more of their invested money into ETFs and are no longer bothering with individual stocks. Should you do the same? it depends! Let us explore the appeal of ETFs and whether you should consider switching most of your investments to them
Wide Exposure to different sectors and industries
Simplicity
By design, ETFs are packaged to be simple to understand and purchase. While you are free to look under the hood and see all the technical and deep details, for the most part, you only need to know the basics such as :
- What index or sector it tracks
- The expense ratio
- What the ETF holds
- How the ETF has performed
- How easily you can buy and sell the ETF
Fees
Generally speaking, ETFs trade lower—sometimes much lower—than traditional mutual funds. When it comes to ETF fees and the cost of owning them, you need to look at what is called the ‘MER’ or Management Expense Ratio. The MER represents the annual fee that covers the fund’s management and operational expenses. It is expressed as a percentage of the fund’s average assets under management and is deducted directly from the fund’s returns. Since ETFs tend to have lower MERs compared to traditional mutual funds, they can be a more cost-effective investment option for many investors.
Variety of ETF options
There are literally hundreds, if not thousands, of ETFs out there, providing exposure to different sectors, industries, stock markets, geographical regions, and more. Whether you’re interested in broad market indices, specific sectors like technology or healthcare, or even niche areas such as emerging markets or sustainable investments, there’s likely an ETF that aligns with your investment goals. In fact, in keeping with the growing general interest in Bitcoin and cryptocurrencies, there are now various ETFs that track the performance of Bitcoin and other digital assets. These cryptocurrency-focused ETFs provide investors with an easy way to gain exposure to the volatile world of cryptocurrencies without the need to directly purchase or store them. Whether it’s a Bitcoin ETF, a blockchain technology ETF, or a broader crypto-related fund, these options offer a convenient way for traditional investors to participate in the crypto market.
Some people swear by the simplicity, convenience and stress-free nature of ETF investing, that they don’t hold a single stock. That can work for you if you don’t want to bother with individual stocks and think they are too risky. For me personally, I am still well-invested in stocks, but do hold a few ETFs in my portfolio and plan to buy more.