Tuesday, April 29, 2008

ETF's or index funds?

ETF's or Exchange Traded Funds are becoming popular investment vehicles due to their tax advantages and low fees. Business Week offers advice.
  • ETFs are generally cheap to hold but can be expensive to buy, while index funds are easy to buy but slightly more expensive to hold.
  • If you invest a lot all at once, the ETF is probably a better choice. If your investing is spread over time—just a small portion of each paycheck, for example—then index funds might be cheaper.
  • Resist the Temptation to Trade: ETFs are easy to buy and sell, which make it tempting to try to gamble your way to riches by buying and selling them frequently.
  • Some have high expenses—though they're almost always lower than a comparable mutual fund—and others, especially specialized ETFs (such as those that trade commodities), might not shield you from taxes

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