After managing my family’s portfolio for thirty years, I can tell you that keeping up consistently with a portfolio of individual stocks for the average individual investor is about as easy as sticking to a Weight Watchers diet. (Believe me, I can tell you about both!) We start out with good intentions, but we get busy with other demands on our time. On top of that, more and more information seems to be coming at us every day from more and more places on the globe.
Some try to simplify decisions by using mutual funds. While mutual funds do have some advantages, the following drawbacks have driven me to use Exchange-Traded Funds:
- The majority of active investment managers lag the market.
- Costs can be high.
- There can be negative tax consequences.
Here are a few resources for you to look through. They can help you decide if ETFs are right for you or serve as a starting point for a discussion with your financial manager.
“The Exchange-Traded Funds For Dummies Cheat Sheet” summarizes many issues you should think about when considering ETFs. One of my favorite features of this article, found on Dummies.com, is the list of Websites for Up-To-date ETF Information. I’ve used many of these sites to do research for myself.
The ETF Education Center at Yahoo! Finance lists a number of short, simple articles on ETF topics. One helpful article, “Beware of Small ETF Trades” does a nice job of comparing costs of buying ETFs versus mutual funds. The writer concludes that ETFs are not a good choice if you intend to make frequent, small purchases.
A website I like to use is the ETF Database. The free section has easy-to-use tools such as sorts by country exposure, categories, and types. Articles tend to be more detailed and technical than those found at the Yahoo! ETF Education Center.
It seems like new ETFs are being launched all the time. The sources above should help you decide if ETFs are right for you.