Benefits of ETFs

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Exchange Traded Funds, or ETFs, are a relatively new financial instrument that usually consist of a collection of securities that track an index. For example, an ETF that tracks the S&P500 Index holds stock in each of the 500 companies tracked by the index. So an investor can diversify by purchasing the S&P 500 in one transaction.

Investors buy and sell ETFs like stocks, not like mutual funds, which means increased liquidity, flexibility, and transparency. One important additional advantage of ETFs over stocks and mutual funds lies in their tax efficiency.

ETFs of ETFs are particularly conducive as vehicles for asset allocation. In addition to the advantages held by most ETFs—transparency, liquidity, and tax efficiency, ETFs of ETFs provide an opportunity to maximize diversification without saddling the user with the burden of frequent trading accompanied by corresponding fees.