Are ETFs Right for You?

September 17, 2006

Exchange traded funds (ETFs) are gaining in popularity, but are they right for you?

ETFs are similar to index funds, but they trade like a stock, meaning they can be bought and sold throughout the day instead of just once a day.


Low cost – ETFs have a lower annual expense than most mutual funds, including most index funds.  According to Morningstar, the average expense ratio for ETFs is 0.30%, compared to 0.35% for no-load index funds, and 0.96% for all mutual funds.

Tax efficient – ETFs don’t have to sell stock positions to meet shareholder redemptions, which cuts down on taxable transactions.  Also, redemptions by large shareholders are paid in kind, protecting investors from unnecessary taxable events.


The main disadvantage of ETFs is that they can only be bought through a broker, which means you will pay transaction costs each time you purchase an ETF. 

Conclusion:  ETFs can be a great way to diversify your portfolio, especially if you are making a one-time purchase.  But if you make regular purchases, such as with dollar cost averaging, the transaction costs can end up costing you more than if you had purchased an index mutual fund.

To learn more about ETFs, check out the Exchange Traded Funds Center at Morningstar.  In addition, you can read more about iShare ETFs managed by Barclays Global Investors, or Vanguard’s ETFs.


Leave a Reply


Beacon Financial Advisors, LLC, is a fee-only financial planning and Registered Investment Advisory firm headquartered in Lee’s Summit, Missouri and serving the greater Kansas City area.

The firm offers comprehensive financial planning services. Beacon advisors work solely for their clients. Click here to learn more about our services.

About Us

Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

In the News

Investment News – Kristine McKinley discusses the 0% Social Security COLA (for 2016) in No Social Security cost-of-living adjustment in 2016.

Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.