Exchange Traded Funds: 7 Reasons They Beat Most Mutual FundsWritten by David A. Twibell
There’s been a lot of recent talk in financial press about exchange traded funds, or ETFs. Some of you may already be familiar with them, but my guess is for most individual investors, term “exchange traded fund” is just another bunch of financial gibberish – vaguely familiar but completely meaningless. Well, to artlessly coin a phrase from movie Braveheart, “we’ll ‘ave to remedy that then, won’t we.” In financial-speak, ETFs are hybrid investment vehicles that combine trading flexibility of individual stocks with diversification benefits of mutual funds. ETFs possess characteristics that make them particularly suited for investors who want a low-cost way to obtain broad exposure to specific sectors of financial markets. That’s mouthful, but what it really means is that ETFs are like mutual funds, only better. And they are better for several reasons. First, ETFs are cheaper than mutual funds. ETFs have extremely low annual expenses, often less than 20 basis points (0.2%). Contrast this with actively managed mutual funds whose disclosed expenses average over 135 basis points (1.35%) – and this doesn’t even include additional 2% to 5% in loads, 12(b)-1 marketing fees, transactions costs, and soft dollar expenses mutual funds charge you but never disclose (except in teeny-weenie small print nobody ever reads). Second, ETFs have a lower turnover than most mutual funds. Because ETFs are passively managed and consist of a fairly static basket of stocks, they generally have little or no portfolio turnover. Contrast this with many actively managed mutual funds that can turn their portfolio over several times during course of a year – incurring transaction fees on each purchase and sale. Third, ETFs are more tax-efficient than mutual funds. Unlike actively managed mutual funds, which annually spin off taxable short-term gains and distributions to shareholders, ETFs ordinarily only generate taxable capital gains when you sell them. Moreover, due to their unique legal structure, ETFs are also more tax-efficient than their passively managed index mutual fund counterparts.
| | Choosing A Forex BrokerWritten by Geoff Turnbull
With currency trading becoming ever more popular, number of brokers is growing at a rapid rate. What should one look at when deciding which broker to open an account with? These are important points to consider.Spread Because currencies, unlike futures and stocks, are not traded through a central exchange, spread can be different depending on broker you use, so it's well worth checking a few out before you open an account. Most forex brokers publish live or delayed prices on their websites so you can compare spreads, but check if spread is fixed or variable. A fixed spread means exactly that - it will always be same no matter what time of day or night it is. Some brokers use a variable spread, which might appear to be nice and small when market is quiet, but when things get busy they can widen spread which means market must move more in your favor before you start to make a profit. Fixed spreads are generally slightly wider than variable spreads are when at their narrowest, but over long term fixed can be safer. Execution Some brokers will show live prices on their trading platform, but will they honor them when it comes to pushing Buy or Sell button? The best way to find out is to open a demo account and give them a test drive. This will also give you opportunity to see what speed of execution is like - when you want to buy, you want to buy now, not sit around waiting for ten minutes whilst your order is confirmed! Trading Platform Good trading software will show live prices that you can actually trade at, not just indicative quotes. It will offer Limit and Stop orders, and ideally will let you attach these to your entry order. One-Cancels-Other orders are another useful feature - they mean you can set up your trade and then leave software to get on with it. And most important feature of all - can you actually understand platform? Having all bells and whistles is of no use if you can't use them, so again, get a demo account and give it a go.
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