July 14, 2013

5 Reasons Why You Should Invest in ETFs

For the last 3 or 4 decades, the world has evolved to become more fluid, interdependent, cohesive, and
interconnected environment where either everyone learns to work together or fail individually.  Corporations now have an international presence - where social responsibility and earnings (or lack thereof) in one country could mean profits (or losses) for shareholders in an entirely different country.  Political progress, fiscal and monetary policies, and other relationships between a few countries could cause disruptions in other markets all over the world...which would potentially cause trouble with our retirement plans and other investments.

Because of all of these "potential" shocks in our newly developed world, where an event in one country could bring ripples of trouble to the assets and investments in another country - our investment portfolio should show resilience in the face of these added risks.  And ETFs are a good way to add resilience to your porfolio.  Here are 5 reasons why you should invest in ETFs:

  1. Mitigate Risk - ETFs invest in a portfolio or sector of stocks within the same industry.  This allows you to balance any bad stocks with the good (diversification).
  2. Low Fees/Expense Ratio - there are passive ETFs that do not include extra maintenance charges and fees such as that of a mutual fund.
  3. Flexibility - ETFs trade just as stocks do, and you can sell anytime.  They are very liquid.
  4. Hedge - ETFs can easily help investors create a hedge against potential losses in the market
  5. Transparency - ETFs offer investors details of the fund, including the stock holdings, weighted avg, etc.
As the world evolves - our investment portfolio must also evolve to protect our holdings and increase our assets and income.