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Can someone explain to me exactly how these work? I understand that they have much lower fees than mutual funds. Is this correct? Whar are the downside to them?
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Re: Exchange-traded funds ETFs Question
An ETF is like an index mutual fund, i.e. it represents a basket of stocks and/or bonds. Generally speaking, both have very low expenses, but it depends on the ETF or the index fund.
ETFs have more flexibility since they are traded on an exchange. This means you can buy and sell them as often as you want whenever the exchange is open. You can short them, buy them on margin, etc. just like any other stock. Also generally speaking, they tend to be more tax efficient than mutual funds.
BUT, the thing you have to watch out for is the commissions. Every time you buy and sell an ETF, it's going to cost you commission. So if you're buying and selling relatively small numbers of ETFs (for example, if you're a dollar-cost averager), you're going to blow a lot of money on commissions. -
Re: Exchange-traded funds ETFs Question
If you are not churning your account yu might want to take a look at sharebuilder.com.Comment
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