Exchange Traded Funds
Transcript, 2 minutes 30 seconds, for use during week of Dec.
Description: Penny, Susan, and Ira discuss exchange traded
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Extension through a grant from the Investor Protection Trust,
providing investor education on the web at: investorprotection.org.
Ira: Penny, we’ve talked about managed mutual funds and index funds and
I know there are advantages to each of these types of funds for the individual
investor. Are there other investment funds we should consider in our investment
Penny: There’s a new type of fund available now called
exchange traded funds, or ETFs.
Susan: Penny, what’s an exchange traded fund and how does
it differ from the other types of investment funds we’ve
Penny: Exchange traded funds are similar
to mutual funds in that they hold a basket of securities--stocks,
bonds, currencies and commodities, among others. The
first exchange traded funds included the securities that make
up an index such as the S&P 500. The newer exchange
traded funds target specific market sectors such as transportation
Ira: Are there advantages to these exchange traded funds
over managed mutual funds or index funds?
Penny: The expense ratio
of exchange traded funds is, on average, even lower than that
of index mutual funds. They are also tax efficient, similar
to index mutual funds.
Susan: That sounds like something we might be interested in. Are
there other advantages to exchange traded funds?
mutual funds, ETFs are traded on exchanges where you can buy
and sell them throughout the day, like stocks.
Ira: So, an exchange
traded fund is tax efficient, has a low expense ratio, and can
be traded like stocks. Are there
any drawbacks to investing in this type of fund?
Penny: The biggest
drawback to exchange traded funds is the brokerage commission
you pay each time you buy or sell. If you’re
an investor who dollar cost averages by regularly putting a smaller
amount into an investment, you might be better off using a no-load
index mutual fund than an exchange traded fund.
Susan: Thanks so much,
Penny. This is really helpful information.
welcome. And remember, for more information visit the
ISU Extension website at extension.iastate.edu and look for ‘Invest