Is there an advantage to ETFs vs. index funds?
Answers | 4
Best of luck
Lets dig deeper into the question. What are ETF's? They are virtually always invested in an Index.
Now, lets dig into an index. There are many and they come in various sizes. They are composed of a basket (index) of assets (stocks, bonds, commodities). There are various ways to weight them (price, market cap, etc.). An Index can be a basket of 2 assets or more than 5000. Choose wisely.
ETFs offer both tax efficiency and lower transaction costs. More than two trillion dollars have been invested in ETFs since they were first introduced in the United States in 1993. By the end of 2015, ETFs offered "1,800 different products, covering almost every conceivable market sector, niche and trading strategy.
ETFs can be passively and actively managed investments. In 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively managed ETFs..
An index can be either passively managed or actively managed (by a fund manager).
The index itself can also be listed with various ETF administrators. The main difference between administrators are fees, commission, availability, etc. In general the index by itself is usually the same. READ the fine print.
There are advantages in everything. Perhaps, a better question is which is an advantage for you:
2 versions of this:
1). lower costs (Expense ratio, cash drag, fund manager bonus, etc)
2). Greater ROI-Return On Investment
I am not using risk as a #3 because as an Investment Manager my job is to eliminate risk.
On liquidity-for a passive investment this has little meaning other than your $$ are sitting in place and not growing. Now for an actively managed fund, liquidity is necessary for things like redemption's (you want $$ now for selling), purchasing new investments (buying more assets), paying taxes, fees, etc.
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It's not what you make,, It's what you keep that determines our lifestyle.