Most ETFs, especially
index ETFs which mirror the general stock market (Dow Jones, NASDAQ, and
S&P 500), simply simulate underlying indices. They are not subject to
trading fees and commissions on a regular basis, incurred by fund managers who
endeavor to beat the general market. Fund managers routinely rebalance their fund
portfolio in order to improve funds’ performance. This process incurs fees and
costs. Eventually this increasing fees and costs will be imposed on mutual fund
holders.
Comparing with mutual
funds, ETFs are cost-effective to own and hold over the long time period. This
feature makes them specifically appealing to the typical buy-and-hold investors
who aim at long-term portfolio growth.
ETFs charge extremely low
annual fees, (as low as 0.04% of assets compared with 1.4% for average mutual
fund fees (according to Morningstar). You could create a full and
well-diversified portfolio utilizing ETFs only! Every
investor loves to save management fees, especially those investors who place
their most of savings into their long-term portfolios. In helping investors
save money, ETFs really compete very well with other securities. ETFs for
underlying stock market indices charge even lower turn-over and management fees.
As you might
know, the Vanguard 500 Index Fund is often known as one of the least expensive
to maintain index funds. The Vanguard fund’s approximate 20 basis points of
expense ratio are tremendously lower than the 100 plus basis points which are
usually charged by other mutual funds.
However, if you compare the SPDR 500 ETF with the Vanguard 500 Index
fund, the approximate 10 basis points expense ratio charged on SPDR 500 ETF are
about 50% lower than the Vanguard 500 Index Fund. This puts other equity funds
to shame!
Before you are able
to trade ETF, you need to set up a brokerage account. The commission you pay can range from under
$10 for discount brokers to several hundred dollars for traditional brokers. TDAmeritrade, E-Trade, Scottrade, and
Interactive Brokers are the most popular discount brokers.
On the other hand, Wells Fargo and Merrill Lynch provide good deals to
qualified investors.
Wells Fargo provides 100 free trades per year if your portfolio meets
certain criteria.
Merrill Lynch provides 30 free trades per month to qualified customers.
You can check websites out from wellsfargo.com and merrilllynch.com, and
find out the detailed information before you open accounts with these brokerage
houses. Please pay attention to the special requirements in order to get free
trades. Hopefully it can help you reduce trading cost, and preserve more
profit.
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