{"id":7228,"date":"2013-12-06T08:57:24","date_gmt":"2013-12-06T16:57:24","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=7228"},"modified":"2016-12-21T07:28:17","modified_gmt":"2016-12-21T15:28:17","slug":"exchange-traded-funds-retirement-savers-best-friend","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/exchange-traded-funds-retirement-savers-best-friend\/","title":{"rendered":"Exchange Traded Funds: A Retirement Saver’s Best Friend"},"content":{"rendered":"

Exchange traded funds, now widely held among investors both big and small, have gotten something of a reputation as keen trading tools.<\/p>\n

A fair number of investors like the idea of being able to buy a slice of the Dow Transports or a chunk of the real estate business with an eye toward dumping the position in short order.\u00a0Exchange traded funds<\/a>, known as\u00a0ETFs, offer that kind of exposure.<\/p>\n

\"exchange<\/a><\/p>\n

Which is fine, if trading is your goal. The\u00a0retirement\u00a0saver, however, should look at exchange traded funds for what they offer in terms of cost, predictability and total return.<\/p>\n

Here are some key points to consider when building a serious\u00a0retirement\u00a0portfolio<\/a>:<\/p>\n

1. Cost is paramount<\/strong><\/p>\n

The major reason to chose exchange traded funds over active mutual funds is cost. Most active funds charge well over 1% in\u00a0fund management fees<\/a>\u00a0and pass along the underlying costs of funds they buy and commissions they pay.<\/p>\n

The resulting hit is a large part of the reason the majority of funds fail to beat the benchmarks, year after year. Underperformance is virtually guaranteed.<\/p>\n

2. Looking for indexing power<\/strong><\/p>\n

You should never buy an exchange traded fund thinking, “Stocks<\/a>\u00a0will go up.” Rather, you should be seeking exposure to the possibility of an increase at the lowest possible cost.<\/p>\n

Doing so provides your portfolio with a return very near the results of the actual indexes, which have shown time and again to be the most reliable sources of long-term investment gain<\/a>.<\/p>\n

3. Careful with tracking error<\/strong><\/p>\n

Some\u00a0ETFs\u00a0try to replicate narrow slices of a given investment type by replicated the return artificially, often using complex derivatives and futures to model an\u00a0index<\/a>.<\/p>\n

That can result in wide gaps between an ETF and the index it purports to represent. Stick with broadly held, long-only exchange traded funds to avoid this trap.<\/p>\n

4. Liquidity is vital<\/strong><\/p>\n

Index fund owners typically \u00a0buy in order to hold for long periods. If you plan to\u00a0rebalance<\/a>\u00a0frequently, an ETF can give you the power to buy and sell with ease, often commission-free.<\/p>\n

Be sure to own the most widely held\u00a0ETFs, however. Small ETFS that are less liquid can result in wider “bid-ask” spreads, the gap between the sell and buy price, introducing unplanned costs into your portfolio.<\/p>\n

5. Check your emotions<\/strong><\/p>\n

By far the most useful features of exchange traded funds is their impersonality. There’s no manager to follow, no corporate backstory or C-suite drama to fret over.<\/p>\n

For traders, that can seem a disadvantage. For long-term\u00a0retirement\u00a0savers, however, reducing\u00a0emotional ties to an investment<\/a>\u00a0is the key to long-term gains. The less you invest personally into a stock, the more likely you are to sell at appropriate times.<\/p>\n","protected":false},"excerpt":{"rendered":"

Exchange traded funds, now widely held among investors both big and small, have gotten something of a reputation as keen trading tools. A fair number of investors like the idea … Read more →<\/span><\/a><\/p>\n","protected":false},"author":8,"featured_media":7230,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_wp_rev_ctl_limit":""},"categories":[7],"tags":[62,42,43,37],"yoast_head":"\nExchange Traded Funds: A Retirement Saver's Best Friend | MarketRiders<\/title>\n<meta name=\"description\" content=\"Exchange traded funds have gotten something of a reputation as keen trading tools. 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