Looking for lower fees and greater diversification within your holdings? Exchange traded funds (ETFs) might be just the thing. And the best ETFs to buy now involve a mixture of low costs and diversification.
These tend to be traditional ETFs that don’t have the kinds of bells and whistles you’ll find with a lot of the newer ETFs on the market. That doesn’t mean they don’t offer good opportunities to boost your portfolio.
Understanding the 4 characteristics of the best ETFs to buy now
It didn’t take long for mutual fund investors to develop in interest in ETFs. ETFs often involve broader diversification than mutual funds, and ETFs have fewer fees associated with them. Additionally, they are more liquid than mutual funds, which we’ll get to in a moment. The best ETFs to buy now all have some common characteristics that you can look for.
ETFs and liquidity: ETFs have greater liquidity than most mutual funds. Liquidity speaks to the ability to buy or sell an investment on a secondary holding. The more liquidity an investment has, the easier it is to buy or sell readily. Investments with higher levels of liquidity will often avoid hefty fees associated with selling as well. Contributing factors to an ETF’s liquidity include the assets that make up the ETF, the trading volume of the assets, and the investment environment.
ETFs can hold a variety of assets, from real estate and fixed income investments to commodities and futures. They can also focus holdings on specific sectors, countries, or indices. The asset class involved will impact the liquidity of the ETF. For example, large-cap ETFs are generally the most liquid ETFs available.
ETFs and diversification: The diversification of ETFs allows investors to avoid the risk associated with a single stock. An ETF can be broadly diversified, and the buyer of the ETF will have access to all the assets that make up the ETF. Diversification helps protect the investment principal while managing risk and reducing volatility. In other words, ETFs provide investors with an easy way of owning a broad group of assets across an industry or index that they might not otherwise be able to afford on their own.
ETFs and fees: Traditional ETFs often have lower fees than mutual funds, many other equities, and derivatives. It’s important to note that “new” ETFs may come with higher fees due to added features, like active management. Traditional ETFs practice passive management, making them a lower-cost investment. It is also worth noting that some ETFs are inherently more costly to trade due to the assets they hold. For instance, index-based ETFs that are passively managed have some of the lowest trading costs, while new ETFs dealing in futures may come with higher trading costs.
ETFs and price: The cost of an ETF can change throughout the trading day, just like a stock. Similarly to stocks, you can purchase ETFs on stock exchanges. This is unlike a mutual fund, where you buy the fund directly from the company selling it, or through a marketplace that has numerous funds available. You can also trade ETFs in the after-hours market, like stocks, but unlike mutual funds. Fluctuations in price may mean that you can find a better buying opportunity throughout the day that you would not be able to find with a mutual fund.
Overall, the best ETFs to buy now will be traditional ETFs that track an index, sector, or region and are well-diversified, liquid, and provide low management costs and fees.
Look for these characteristics, and you’ll know how to find the best ETFs to buy now, tomorrow, and anytime you want to invest.
Do you have a preference over ETF investing and mutual fund investing for your diversified portfolio?