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ETF

Exchange-traded funds (ETFs)

ETF's have become fundamental instruments in the pursuit of tax-efficient investing. ETFs have low operating costs, so they represent intriguing alternatives to garden-variety mutual funds that can gradually “nickel and dime” an investor. With their very low charges and management fees, ETF’s give you a cheap and convenient way to build a portfolio of index funds. Besides being more tax-efficient than index mutual funds, ETFs are easier to manage when it comes to tax loss selling (the swap of short-term capital gains or income tax liabilities for lower long-term capital gains liabilities). And of course, they give you a tax deferral to aid in compounding. Unlike a conventional mutual fund, ETFs trade throughout the day.

They can be bought or sold at any time of the market day; Compared to mutual funds that can only be redeemed at the closing price of a trading day. The transparency of an ETF is really appealing. When the market is volatile and a stock drops like a rock, you can easily find out if your ETF holds those shares or not. A variety of thoughtfully chosen ETFs can allow you to realize broad exposure to the stock, bond, and REIT markets and even global markets.

When you have that kind of wide-ranging diversification plus a skilled third-party money manager who can exploit market inefficiencies, you have the potential for some solid performance. The performance of a collection of actively managed mutual funds, on the other hand, can be beleaguered by overlap and concentration in certain stocks.