Five Reasons to Consider ETFs for a Diversified Portfolio

July 3, 2020
355 Views

ETF, otherwise known as Exchange Traded Funds, are highly popular investment options that provide wide exposure with minimized risk.

Traded just like stocks, ETFs can provide significant benefits to investors at all levels. Whether building a portfolio from scratch or seeking to diversify, these are the top reasons to consider ETF in 2020.

1: Simpler Investment

To gain the same kind of exposure a single mainstream ETF can offer, it would take hundreds of hours of research, individual stock purchases, continuous monitoring, and outside consultation in most cases. For investors who want a stake in a single industry or trend, but don’t want the complexity of individual stocks, ETFs are simpler and less time-consuming.

2: Lower Cost

There’s a significant benefit in the relatively low cost of ETFs, even when they are comprised of valuable assets.

Take the Vanguard Information Technology ETF (NYSE: VGT) as an example. This fund has hit a high of $282.04 in the last 52-weeks, yet its assets include some of the most valuable stocks on the market, including Microsoft and Apple.

For wider exposure to growth on a tight investment budget, ETFs are often the best choice.

3: Tax Flexibility

ETFs are taxed through capital gains when the assets are sold. This makes it easier to predict and plan for taxes on any gains made by trading ETFs. For long term investors, this offers a level of flexibility that most investment products don’t have.

4: More Transparency

With professional management for every fund, an ETF is almost like having a privately managed portfolio in a single stock pick. Fund managers are required to report the components of the fund daily, with a complete list of assets.

This makes ETFs more transparent than mutual funds. For investors who want more active roles in their portfolios, this transparency is highly valuable.

5: Passive Investment Option

ETFs distribute dividends just like stocks, with most providing quarterly returns. Funds are deposited into brokerage accounts, making them immediately available for withdrawal or reinvestment. For investors looking for a more passive approach to income stocks, ETFs are compelling.

Valuable Financial Tools for Any Investor

Individual equities and even mutual funds are still worth pursuing, especially in today’s volatile market. ETFs can be seen as additional tools to boost income or growth potential. The benefits are impossible to ignore, especially when looking for a more profitable and manageable portfolio.

You may be interested

Job Hiring is Picking Up as Employers and Consumers Gain Confidence
Economy
558 views
Economy
558 views

Job Hiring is Picking Up as Employers and Consumers Gain Confidence

Lamont J - March 29, 2021

The recent government stimulus for small and medium-sized businesses, personal stimulus checks, and declining Coronavirus cases, are all great news…

Fed Could Maintain 0% Interest Rate Until 2024
Economy
499 views
Economy
499 views

Fed Could Maintain 0% Interest Rate Until 2024

Adam R - March 26, 2021

The Federal Reserve is holding its target interest rate in a range of 0.00% - 0.25%, even while the economy…

Supply Constraints Could Slow the Home Market
Economy
565 views
Economy
565 views

Supply Constraints Could Slow the Home Market

Becky H - March 25, 2021

Low inventory has been a constant in the home market for more than a year. The supply of existing and…