Options and Opportunities
Exchange-Traded Funds (ETFs) are an investment option to help you get from where you are to where you want to go. With characteristics of both mutual funds and stocks, ETFs are a cost–effective way to buy or sell investments.
What is an ETF?
Like mutual funds, ETFs are portfolios of stocks, bonds and/or other commodities that adhere to regulations about interest ownership. However, ETFs can be traded on exchanges at any time of the day, based on the current price, like stocks. This makes them more liquid than mutual funds, which trade only after the market closes each day.
How does an ETF work?
ETFs are a type of security that can track an index, sector or commodity. Many ETFs are index-tracking. This is a passive management style in which the ETF is assembled to closely match an index, such as the S&P 500, so that it follows the movement and returns of the index.
Do I have to pay taxes when I use an ETF?
Yes – investing in ETFs defers your tax liability, but you will have to pay tax on your gains when you sell the shares.
The Benefits of ETFs
ETFs typically have fewer taxable events when compared to other investment vehicles. This is because there is a lower turnover rate and because buyers and sellers work directly with one another.
Most ETFs have low expense ratios, making them cost-effective ways to diversify a portfolio. While there still will be a commission and/or management fee, its typically less than a mutual fund.
ETFs can help protect investors by offering a variety of sector and index options. You can even invest in an entire market segment.
Like stocks, ETFs trade on major exchanges. That means their price is continuously fluctuating and the ETFs themselves are very liquid.
Sound Like a Good Fit?
If you’d like to explore adding ETFs to your portfolio, let’s talk. At Farm Bureau Financial Services, you’ll have the tools you need and the experience you’re looking for as you plan for your financial future.