NEW YORK (MainStreet) — The rise in the popularity of exchange-traded funds (ETFs) is occurring, because investors are drawn to their lower fees, liquidity and ease of diversification.
Although ETFs have been around since 1993, their attractiveness has soared in the past few years as more 401(k) and IRA plans are offering them as an option. A decade ago, the total amount of funds in ETFs totaled $200 billion and investors could only chose from a few dozen options, said Wayne Connors, a managing partner of Retirement Investor, a Glastonbury, Conn. company where investors build their own IRA portfolios.
ETFs are an “advantageous way” to invest for retirement, he says, since the fees are much lower than traditional mutual funds and trade like a stock by tracking an index, such as a commodity or a group of assets. Assets in ETFs now exceed $2.0 trillion, and there are over 1,600 ETFs for investors to choose from.
One advantage of ETFs is that you buy a number of shares on an exchange and receive an intra-day market price, which takes place at the moment you place your order, said Jim Rowley, a senior investment analyst in the Vanguard Investment Strategy Group in a blog post. Mutual funds don’t give investors this option and the price you pay for is the net asset value at the end of the day.
Here are some tips on how to purchase them as a way to diversify your portfolio.
Purchasing ETFs Can Take Place Any Time Market Is Open