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Managing the Expenses Associated with an Exchange Traded Fund

Managing the Expenses Associated with an Exchange Traded Fund

Almost all investments come with certain expenses attached to them. The task of every good investor is to minimize those expenses, while maximizing returns. This is why having a diverse portfolio is usually a good way to go. Within that, you will want to consider the value that exchange traded funds can bring to the table. An ETF is much different from an index fund in that you can buy just one share. If you do, however, you may end up paying a higher fee. Invest in an index fund, however, and you will need to buy into the entire fund, which often means that you must meet a minimum investment in order to do so. There are many options to consider, so let us go over a few key principles in your effort to manage the expenses associated with an exchange traded fund.

ETF vs Mutual Fund

Mutual funds often come with commissions attached to them, or management fees. These expenses can be hidden and difficult to determine. Exchange traded funds are more transparent because they are sold on a commission only basis. After that, you take advantage of low fees and minimal tax consequences. You will save money with ETFs when compared to mutual funds because of the tax efficiency. They are also more accessible to the average investor and are priced more competitively. Keep in mind that the price of exchange trade funds are updated every minute the market is open. This takes place all day long, whereas mutual funds only have an opening and closing price.

Some More Advantages

Many investors will find an added benefit with exchange traded funds in that there is a low cost to entry. You can find the rates at and compare with other types of funds that are out there today. While the cost might be low, investors should know that they are paying a commission with every purchase, while there is no such charge associated with an index fund. That being said, with an ETF you will benefit from a lower overall cost if you were to leverage out your shares and purchase multiple shares at one time.

With any investment, you will want to weigh your own tolerance for risk. Some investments do come with a high expense, but the possible returns can be quite high as well. If you are risk adverse, you would want to stay away from such investments. However, they can be quite appealing to the investor who has some cash that they do not need ready access to. At the end of the day, remember that it is your money and you have worked hard for it. Put it to good use.

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