The textbook definition of an ETF, or Exchange Traded Fund, is a low-cost fund that tracks an index and trades like a stock. True statement, but that definition hardly captures the possibilities of this investment vehicle. The ETF has tremendous advantages over similar products such as stocks and mutual funds.

ETFs provide diversification you can’t get with a single stock. Investing in an entire sector decreases volatility and insulates your risk of quick and dramatic draw downs. ETFs exercise even more of an advantage over mutual funds including: transparency, real-time pricing, liquidity, and tax benefits.

ETFs also provide exposure to asset classes which, until recently, were off limits to the average investor. Inverse, Leveraged, Commodities, Emerging Markets, Frontier Markets, Precious Metals, Currencies, Bonds, and just about any sector of the US Economy.

The bottom line is there is no longer a reason why you shouldn’t have a balanced portfolio. Keep reading, learn more and use ETF Port resources to find the ETFs best for your portfolio.

Top ETF Port Frequently Asked Questions

What are the tax implications of ETFs?

ETFs are required to distribute dividends and capital gains to shareholders, typically at the end of each year or quarter. The redeemer pays taxes when each of the underlying securities are sold, while the fund owes no taxes based on these redemptions.

Since ETFs are passively managed, they commonly realize fewer capital gains than actively managed funds. Most ETFs are designed to track a benchmark, which can mean fewer trades and lower portfolio turnover. This reduces the frequency of tax gain distributions.