ETFs On A Budget

Since their emergence in the 1970s, mutual funds have permeated the financial industry to become one of the premier investment vehicles for both individual and institutional investors. But experts have often panned the majority of traditional mutual fund offerings, pointing out that they can be expensive, illiquid and relatively inefficient when it comes to taxation. A new breed of funds, however, arose in the early 1990s and still provides many of the same advantages of traditional funds without several of these drawbacks. Exchange Traded Funds (ETFs) are mushrooming in popularity and have begun to supplant their traditional cousins in some areas.

Cost Comparison
One of the prime advantages of ETFs is that they typically cost a great deal less than traditional funds. Many mutual funds charge a sales load that is assessed either at the time of purchase (for A shares) or charged according to a declining schedule if the fund is sold within a certain period of time (with B shares). C shares investors will usually pay a small amount up front and then another smaller amount if they redeem the shares after a year. Traditional mutual funds also charge ongoing management fees called 12b-1 fees that can equal up to a percent or more of each investor's money per year.

Although there are no-load funds that do not have sales charges, even these funds typically charge management fees of some sort (the average cost for a stock fund is just under 1.5%). ETFs never have sales charges and usually charge little or nothing in the way of ongoing management fees, but investors must pay a brokerage commission to buy and sell them just like a stock or any other publicly-traded security. Investors who have limited means may therefore want to consider ETFs because of their lower overall cost. Investors who make small monthly systematic investments such as $50 per month, however, should remember that there is usually a minimum brokerage charge for their monthly purchase; even a $9.95 commission would constitute a substantial percentage of the amount invested. Those in this category may be wise to stick with a traditional fund that will charge a more appropriate percentage for even a small amount of money.

Trading Advantages
Investors who are on a tight budget should also consider that since ETFs trade like stocks, they can be bought and sold on margin and sold short. They can also be purchased at a limit price and have trailing stop loss orders placed under them for protection. Traditional fund investors are at the mercy of the markets and can only buy in when the fund's daily price is set at 4 p.m. EST each day. ETFs are therefore popular with market timers and day traders who seek efficient ways to get into and out of the markets quickly and cheaply. Even low-cost, no-load traditional index fund investors can only place a single buy or sell order each day. Investors with limited means who wish to invest in a specific subsector will also probably be able to find an ETF that focuses on precisely their objective, while providing all the advantages of brokerage trading at minimal cost. Small investors can also participate in sophisticated inverse strategies with special ETFs that invest in instruments that move inversely to the markets.

Tax Advantages
Another key advantage of ETFs is their lower distribution rate of capital gains. Traditional open-end funds that are actively managed often post substantial capital gains distributions every year around November. But most ETFs invest in a set basket of securities that focus on a sector, subsector or benchmark index such as the S&P 500, which typically have very low portfolio turnover. This allows investors to save money on taxes by not having to pay for embedded capital gains each year.

The Bottom Line
ETFs have continued to grow in popularity with both investors and money managers because of their lower costs and greater versatility. Investors who are on a tight budget can often get more bang for their buck out of these instruments than they can from traditional funds. For more information on ETFs, consult your stockbroker or financial advisor.

More From Investopedia

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • How the Dow Jones industrial average fared on Tuesday Associated Press - 16 minutes ago

    Stocks posted modest gains on Tuesday, bringing indexes nearly back to the record levels they reached last week. Homebuilders rose sharply following a big jump in sales of new homes last month, and Best ... … More »

  • Biden vows 'rock solid' NATO ties as allies slam Trump
    Biden vows 'rock solid' NATO ties as allies slam Trump AFP News - 30 minutes ago

    US Vice President Joe Biden promised unwavering commitment to NATO's collective defence Tuesday as he sought to reassure Baltic allies spooked by a resurgent Russia and White House hopeful Donald Trump. "Let there be no doubt -- America's Article 5 … More »

  • Intuit reports 4Q loss Associated Press - 36 minutes ago

    On a per-share basis, the Mountain View, California-based company said it had a loss of 16 cents. Earnings, adjusted for one-time gains and costs, came to 8 cents per share. The results exceeded Wall Street ... … More »

  • Wall St. edges higher on tech, housing boost
    Wall St. edges higher on tech, housing boost Reuters - 50 minutes ago

    With the U.S. earnings season winding down, investors are also turning their focus to the likelihood of an interest rate hike in the coming months. Federal Reserve Chair Janet Yellen's speech on Friday at Jackson Hole will be scrutinized for clues … More »

  • Markets Right Now: US stocks notch modest gains Associated Press - 56 minutes ago

    The latest on developments in global financial markets (all times local): 4:00 a.m. Stocks managed modest gains in another quiet day of trading that kept major U.S. indexes slightly below the record levels ... … More »

  • Nimble Storage reports 2Q loss Associated Press - 57 minutes ago

    On a per-share basis, the San Jose, California-based company said it had a loss of 47 cents. Losses, adjusted for stock option expense, came to 19 cents per share. The results exceeded Wall Street expectations. ... … More »

  • Oil prices jump on report Iran could support OPEC limits AFP - 1 hour 3 minutes ago

    Oil prices jumped on Tuesday after a new report that Iran could support an effort by OPEC and Russia to freeze production and firm up prices. The Reuters report, citing unnamed sources, said Tehran is ... … More »

  • Housing sector lifts U.S., European stocks; oil rises
    Housing sector lifts U.S., European stocks; oil rises Reuters - 1 hour 18 minutes ago

    Homebuilders helped lift both U.S. and European stock markets on Tuesday, while oil prices got a boost from Iran's positive signals about an output freeze. On Wall Street, technology companies led the Nasdaq to a record intraday high and robust … More »

  • Gold steady ahead of global central bankers meeting
    Gold steady ahead of global central bankers meeting Reuters - 1 hour 22 minutes ago

    NEW YORK/LONDON (Reuters) - Gold was largely unchanged on Tuesday as markets shifted focus from hawkish comments by a Federal Reserve official over the weekend to a meeting of global central bankers later this week that might provide hints on the … More »

  • Grain lower, livestock lower Associated Press - 1 hour 27 minutes ago

    Grain futures were lower Tuesday on the Chicago Board of Trade. Wheat for Sept. declined 7.50 cents at $4.0775 a bushel; Sept. corn fell 4.75 cents to 3.2850 a bushel; Sept. oats was off .75 cent at $1.7150 ... … More »

  • Dollar slips vs yen on Fed rate hike uncertainty
    Dollar slips vs yen on Fed rate hike uncertainty Reuters - 1 hour 36 minutes ago

    The dollar slid against the yen on Tuesday, as investors shifted their focus away from hawkish remarks on U.S. interest rates by Federal Reserve officials and towards a speech on Friday by Fed Chair Janet Yellen. Yellen will speak at the annual … More »

  • Oil up over 1 percent as Iran signals support for OPEC freeze action
    Oil up over 1 percent as Iran signals support for OPEC freeze action Reuters - 1 hour 44 minutes ago

    Oil prices rose more than 1 percent on Tuesday after Reuters reported that Iran was sending positive signals that it may support joint OPEC action to prop up the market. It refused to join a previous attempt this year by OPEC plus non-members such … More »

  • BOJ Spurs Bond Volatility on Policy Review Markets Can’t Predict Bloomberg - 2 hours 6 minutes ago

    The only sure thing in the run-up to the BOJ board meeting next month may be wilder market swings. Volatile movements in Japanese government bonds are likely because debt investors aren’t able to price in the outcome of the meeting, according … More »

  • Yuan Funds Abroad See Pickup After Luring $604 Million in 2016 Bloomberg - 2 hours 7 minutes ago

    China Asset Management Co. has seen more inflows into equity funds that invest offshore yuan into mainland equities since Britain’s June 23 vote to leave the European Union. CSOP Asset Management Ltd. had its strongest inflows in 14 months in June … More »

  • Social Security rolls back security measures on website Associated Press - 2 hours 20 minutes ago

    The Social Security Administration has rolled back extra security measures on the agency's website after getting complaints from people who had trouble accessing their accounts. For years, workers and ... … More »

  • AIG in talks to sell Lloyd's insurance business to CPPIB - WSJ
    AIG in talks to sell Lloyd's insurance business to CPPIB - WSJ Reuters - 2 hours 40 minutes ago

    (Reuters) - American International Group Inc (AIG.N) is in early talks to sell Lloyd's of London Ltd's insurance operations to Canada Pension Plan Investment Board (CPPIB), the Wall Street Journal ... … More »

  • VW, U.S. states to hold settlement talks over excess emissions
    VW, U.S. states to hold settlement talks over excess emissions Reuters - 3 hours ago

    Maryland, Massachusetts, New York and Pennsylvania sued Volkswagen over excess diesel emissions related to its use of cheating software while the state of Washington has filed a notice of penalty against Volkswagen. VW said settlement talks will … More »

  • BRIEF-Hartalega Holdings lays off almost 600 people in Q1 - Nikkei Reuters - 3 hours ago

    Aug 23 (Reuters) - Nikkei: * Hartalega Holdings has fired almost 600 people in a "cost management exercise", which is close to 10 percent of its headcount in Q1 - Nikkei Source text for Eikon:... … More »

  • Spain balcony-jumping craze: most are drunk Brits, study finds
    Spain balcony-jumping craze: most are drunk Brits, study finds AFP News - 3 hours ago

    They're young, mostly British, on holiday, drunk and sometimes high, and they decide to jump from their hotel or apartment balcony into the pool. The so-called "balconing" craze has taken off to such an extent in Spain's Balearic Islands that … More »

  • Campaign's rising rent at Trump Tower came as space expanded
    Campaign's rising rent at Trump Tower came as space expanded Associated Press - 3 hours ago

    Donald Trump's campaign is taking up more space inside Trump Tower in New York -- and paying a lot more in rent. The Republican presidential nominee's campaign paid $35,457 per month for rent and utilities ... … More »

  • European markets rise on better data
    European markets rise on better data AFP News - 4 hours ago

    European stock markets rebounded on Tuesday, driven by improving eurozone data and signs that the initial impact of Britain's shock EU exit vote may not be as bad as feared. Investors were also looking to a speech on Saturday from Federal Reserve … More »

  • Danish lawmakers to visit Australia's Nauru migrant camp
    Danish lawmakers to visit Australia's Nauru migrant camp AFP News - 4 hours ago

    Danish lawmakers will travel to the Pacific island of Nauru to visit a controversial Australian immigration centre and study the use of offshore settlements for asylum-seekers, one of the MPs said Tuesday. Six members of the Danish parliament's … More »

  • TABLE-INDONESIA KPB NUSANTARA PALM OIL PRICES - Aug 23 Reuters - 4 hours ago

    Aug 23 (Reuters) - Following are Indonesian prices for crude palm oil (CPO) quoted at an auction by PT KPB Nusantara (formerly known as the state marketing centre) on Monday. Buyer Volume Price Terms (tonnes) ... … More »

  • RUBBER-Tokyo futures prices after evening session Aug 23 Reuters - 4 hours ago

    Following are prices for Tokyo rubber futures at the end of the Tokyo market's evening session on Aug 2016. Contract Day Volume Evening Volume * Aug 169.2 - 161.4 13 * Sep 163.8 23 161.8 26 * Oct 161.9 ... … More »

  • Turkey vows 'all kinds of support' for anti-IS Jarabulus operation
    Turkey vows 'all kinds of support' for anti-IS Jarabulus operation AFP News - 4 hours ago

    Turkey pledged Tuesday to give "all kinds of support" to push Islamic State (IS) jihadists out of the Syrian town of Jarabulus near the two countries' border. Foreign Minister Mevlut Cavusoglu made the promise amid reports Ankara-backed rebels were … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.129-0.002-1.53%
    N21.SI
    0.790.000.00%
    BS6.SI
    0.370.00+1.37%
    E5H.SI
    0.5650.0000.00%
    5TP.SI
    0.255-0.005-1.92%
    5ME.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.40+0.09+29.03%
    AWI.SI
    0.194+0.028+16.87%
    B69.SI
    0.159+0.019+13.57%
    5PD.SI
    0.17+0.02+13.33%
    BGO.SI
    0.225+0.025+12.50%
    BQN.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.285-0.065-18.57%
    AVZ.SI
    0.155-0.033-17.55%
    RF7.SI
    0.22-0.03-12.00%
    BLZ.SI
    0.23-0.03-11.54%
    BLU.SI
    0.225-0.025-10.00%
    K14.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.35070.000.00%
    USDSGD=X
    1.5269-0.0021-0.14%
    EURSGD=X
    1.7810+0.0063+0.35%
    GBPSGD=X
    74.1320-0.117-0.16%
    SGDJPY=X
    5.7354-0.0031-0.05%
    SGDHKD=X
    2.9758-0.0015-0.05%
    SGDMYR=X
    9,815.2822+25.0186+0.26%
    SGDIDR=X
    4.9107-0.0123-0.25%
    SGDCNY=X
    1.0280-0.0027-0.26%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,342.00-1.40-0.10%
    GCZ16.CMX
    18.82-0.04-0.21%
    SIU16.CMX
    103.89-1.81-1.72%
    ^XAU
    2.11-0.03-1.26%
    HGU16.CMX
    47.64+0.23+0.49%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.14+0.01
    ^FVX
    1.55+0.01
    ^TNX
    2.240.00
    ^TYX