Out With Mutual Funds: Should Your Entire Retirement Portfolio Consist of Only ETFs?

NEW YORK (TheStreet) -- With exchange-traded funds rising in popularity, some investors have made an extreme move in their financial planning: They own only these baskets of stocks, instead of mutual funds, in their retirement portfolios.

Investors are drawn to ETFs because of their lower fees and portability. As such, assets in ETFs now exceed $1.7 trillion, and there are more than 1,600 ETFs for investors to choose from.

ETFs are an “advantageous way” to invest for retirement since the fees are much lower than with traditional mutual funds and they trade like a stock by tracking an index, such as a commodity or a group of assets, said Wayne Connors, a managing partner of Retirement Investor, a Glastonbury, Conn., company that allows investors to build their own IRA portfolios.

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 chose from only a few dozen options.

ETFs are a better option than mutual funds because they are transparent and consumers can trade them at any time during the day, said Matthew Tuttle, CEO of Tuttle Tactical Management, based in Stamford, Conn. When you purchase shares in a mutual fund, you can buy them only at the end of the trading day, which is when the stock market closes. Mutual funds also typically require investors to purchase a minimum amount, especially when they are buying shares in one not previously owned. ETFs have a simpler structure, and investors can purchase as little as one share.

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