5 Reasons Why ETFs Are the Best Way to Start an Investment Portfolio

5 Reasons Why ETFs Are the Best Way to Start an Investment Portfolio

The global economy is trying to pick up in 2021. After almost an entire year of an economic slump due to the COVID-19 pandemic, the investors have high hopes about the growth of the market as the world prepares to develop and disseminate the vaccine that could help avoid the spread of the viral disease.

One of the most popular investment vehicles nowadays is the Exchange Traded Funds (ETFs). It became one of the top investment strategies that promise to provide more benefits to any willing investors.

If you plan to start diversifying your investments, gain more exposure to your chosen industry, or avoid your risk, then investing in Exchange Traded Funds could be your best option. Here is a list of the best reasons why experienced investors choose to put their money on ETFs.

  1. Single Transaction 

The ETF investments simulate the usual holdings of stock indexes. Thus, it can follow particular industries, regions, or other sectors that the usual index can follow. But the usual stock index investment obliges investors to purchase all security held, one by one, in a basket of index stocks.

Investing in an ETF usually offers a similarly diverse set of holdings through a single transaction. You may consider every share of an ETF as an individual mini-portfolio. It can streamline the process of purchasing the investment, so you no longer have to bother placing multiple orders and think about the fairest price for each.

  1. Cost Efficiency

Investors can have easier time-saving money with ETFs. Since you can only have one transaction with every trade, you will be able to prevent the piling up of commission fees that may happen when you choose to add a basket of stocks to your investment portfolio. You may also manage the fees to lower your ETF investments, compared to the usual mutual fund.

  1. Liquidity

Most investors prefer putting their money on ETFs because it can make the buying process easier without sacrificing its liquidity. It works like stocks since the trading of ETF transactions happen during market hours. They trade intermittently as well.

Investors may also have the option to sell their ETFs short or on a margin. Generally, the ETFs trade like the common equities on the usual stock market, even if it has more options available for anyone who wants to put their money on it.

  1. Tax Efficiency

Those who have a more clear idea about ETFs know that this is one of the most tax-friendly investments. Compared to other money-making transactions like the traditional mutual funds that often attract opportunities to generate capital gains taxes, ETFs do not need to acquire capital gains until the assets have been disposed of. It means that the investors can choose when to inflict ETF taxes by themselves.

However, you must still keep in mind that you still need to pay taxes on individual ETF dividends once distributed.

  1. Simplicity

Investors get that ETFs are generally simple and easy to understand unless you want to venture into advanced products like inverse and leveraged ETFs. If you intend to get the most advantages out of your investments, you need to ensure that you have the best knowledge about all the investment tricks and trade to avoid any confusion. So if you want to begin expanding your investment portfolio, you need to begin with ETFs.

Putting your money on ETFs could be a clever way to venture into the world of investments. You may refer to online information to know more about the trade or contact a reliable ETFs adviser to help you understand better.