6 reasons Invest through
ETFs
Mutual Funds Against ETFs, who wins the battle over our investment portfolio? Which investment is better? There is no clear answer, but it is important for us to understand the risks and benefits of each investment tool so that we can Choose the best investment that will suit you To strategic Our investment. Here are six reasons to consider buying and selling an ETF instead of a mutual fund.
If you are interested in building a diversified investment mix, Without selecting specific stocks or assets, You have the option to invest in ETFs Or Mutual Funds. The difference between these investment products is in the way the assets of the same product are managed, in a "passive" or "active" way .
In the mutual fund , there is an investment policy detailed in the fund prospectus, The fund manager constantly changes the investment mix based on his experience and knowledge. And selects assets Actively aimed at generating an excess return on the indices. Investment policy is subject to change with prior notice to investors. For example, the trust company was recently fined Meitav Dash for NIS 500,000 when the fund manager deviated from the investment policy defined in the prospectus. The fund manager may select the specific shares but may not exceed the prospectus limits.
In the ETF however the management is Passive, the certificate is issued according to a prospectus and its purpose is to expose the investor to all the assets of the index / sector according to their relative weight determined by the stock exchange, so that the return should be as close and direct as possible to the index it tracks. The ETF is a tradable product and can be bought and sold on the stock exchange according to supply and demand.
1. Simplicity - When you buy or sell an ETF. Basket, it is done in one price with one easy transaction of buying or selling when the product has a negotiable and known price during trading hours. In mutual funds the situation is more complex, the shares are traded within the fund frequently so it is not possible to predict what the closing price of the fund will be and to rely on the benchmark movements.
2. The price - both products charge an annual management fee. ETFs. Baskets are more economical than mutual funds. Since mutual fund shares are actively traded and the fund itself is actively managed by the fund manager, they often require much higher management fees than the ETFs (about 1.4% for an equity fund compared to 0.5% compared to the corresponding basket). With the ETF, this is one simple deal. Just like buying inventory. In the end the commission parameter can significantly affect the return Our investment portfolio. A method that currently exists in investment houses that have mutual funds, to offer you reduced management fees, or even portfolios with no management fees at all. So do not be tempted to go for less that your full potential Invest in 0% management fees, make sure the portfolio is not complex From "home" mutual funds, since the management fees are already embodied within these mutual funds. And they will usually be higher than the average management fee in the portfolio management industry which stands at about 1% per year.
Do not be tempted to invest portfolios at 0% management fees, and make sure that these are not portfolios consisting of mutual funds!
3. Flexibility - With more and more new ETFs being issued every day, investors have more options to focus on their trading strategy. As well as certificates Short basket, leveraged certificates, and currency neutralized certificates. There are so many types of ETFs that allow you to track the performance of a particular index or achieve a particular financial goal. This thing is less Achievable with a mutual fund. For the funds this is active management and higher operating costs.
4. Mobility - ETFs American women are a tradable product on the stock exchange, When you want to replace the portfolio manager By another investment company, complications with mutual funds may arise. Many times you will have to close the position before you can transfer the case to another manager. Also, if you want to transfer your investment account from the bank to a foreign broker, you will not be able to transfer the mutual funds. It can be a big headache for investors, who will be forced perform Unwanted transactions prematurely. also Elimination of mutual funds of the portfolio can increase the risk in it due to the reduction of the spread, increase the commissions, and result in early taxes on capital gains. With ETFs, the transition is clean and simple when switching investment companies. They are considered a mobile investment, which is a nice and very lucrative advantage.
5. Marketability - The ETF is a tradable product with supply and demand rates
Just like stocks. Can be traded During trading hours. Also the issuer of the certificate
Which also makes the market of the certificate is committed to always supply demand and supply
So you can sell any quantity and you can buy any quantity from the certificate and respond to the markets
In the same day. In contrast, in a mutual fund the trade is not continuous,
The opening and closing gates are uniform for everyone Is and set at the end of the trading day.
6. Transparency - the investors Know exactly what the ETF holds, can keep track of
The performance of the index and even after the symbol symbol quotes on the stock exchange. The investor can respond to market changes in real time.
So who wins the battle?
In a survey conducted by Market Watch magazine In June 2017, which examined the most recommended investment products by financial advisors to their clients. The survey, which was submitted online in April-May 2017 and received 302 responses from financial advisors from different backgrounds, surveyed historical data from 2006 to 2017. and clearly showed The popularity of ETFs has grown since 2006, when only 40% of survey participants indicated that they used or recommended an ETF, a percentage that rose to 44% in 2008. To 79% in 2014 to 81% in 2015 to 83% in 2016, and about 88% in 2017.
.
According to the study, it exists A growing trend Which encourages use In ETFs, this trend is expected to continue to grow in the coming years as well. In fact, 50% of the consultants surveyed said they intended to recommend On the purchase of ETFs over the next 12 months.
80% of advisors, recommend mutual funds; 61% on Individual shares; and 52% recommend buying bonds.
Compared to ETFs that are constantly growing in advisors 'recommendations, mutual funds are on a static trend of around 80% from 2006 to 2017. But it is still the advisors' favorite product.
A low percentage of advisors surveyed use esoteric investments such as hedge funds (9%) and non-marketable REIT funds (15%). Also, the survey suggests that advisors recommend investing less in individual stocks.
According to the survey. More than a third of the consultants (36%) believe that the traditional management approach Which includes a division between bonds and shares 60/40 , 80/20, 70/30. You can no longer Provide the returns that investors expect from a historical perspective. And that current market conditions have created for almost a third of advisors (27%) difficulty in creating a better enough dispersion with the current asset allocation.
.
"ETFs are a great way to get high exposure to a sector or property with very little spending" Kelly Crane, President and CEO of Napa Valley Wealth Management
The downside to ETFs has always been the cost of buying and selling them, something that does not exist in mutual funds. But due to the constant erosion of buying costs, and the transition of many traders to private brokers and direct activity through American stock exchange members,
Which significantly bounced the popularity of the product among investors.
In contrast, a low percentage of consultants surveyed use esoteric investments such as hedge funds (9%) and non-marketable REIT funds (15%). Also, the survey suggests that advisors recommend investing less in individual stocks.
And what about alternative investments?
It seems that the largest investment advisors in the world are less likely to recommend investments to their clients Alternatives. "Most consultants (73%) allocate no more than 10% of client portfolios to alternative investments," the study said. "This small allocation may also be the reason why only 8% of consultants are considering adding alternatives to future portfolios." Alternative investments are the same non-marketable assets, such as: real estate project, road development, hedge funds and equity funds.
The index cannot be beaten, so let's delete it!
ETFs Were created out of the understanding that it is not possible To beat the index and achieve an excess return over time over the indices therefore it is better to emulate them. also The most talented mutual fund managers have a hard time Achieve the excess return and justify the costly management costs of mutual funds. Investors have also noticed and internalized this fact, and so many of them Flocking Towards ETFs in recent years. That have become To the investment instrument The leading passive in the country.
We at Fjord concentrate on investments Using ETFs, from the perspective that this is an investment instrument that produces both the right spread for each portfolio size, as well as significant savings in costs and trading fees. We will be happy to provide you with a recommended and correct investment mix for you, after answering a number of important and critical questions to examine the level of risk that is right for you.
.
So what are the benefits of ETFs over mutual funds?
