What Are The Pros and Cons of ETFs?
The main advantages associated with ETFs are diversification, liquidity, lower fees and capital gains tax. The disadvantages are the flipside of the benefits.
Published May 10, 2021.
The main advantages associated with ETFs are diversification, liquidity, lower fees compared to mutual funds, lower capital gains tax, minimal discounts or premiums in the pricing.
The common disadvantages associated with ETFs include the lack of diversification in some ETFs, higher costs compared to stocks, higher risk in leveraged ETFs, lower dividend yields than stocks.
Most investors love ETFs because of the diversification offer, given that they usually track a basket of stocks. For example, an ETF that tracks the S&P 500 gives the investor exposure to all the stocks contained in the index.
ETFs are also very liquid because their prices are updated throughout the day compared to mutual funds, whose prices are adjusted at the end of the day based on their net asset value.
Some passive ETFs have lower expenses versus mutual funds, which are typically actively managed. Passively managed ETFs also tend to attract lower capital gains tax than mutual funds that distribute capital gains tax to the holders once shares are sold for a profit.
The main disadvantages associated with ETFs are: sector and country-specific ETFs are not very diversified, the intraday prices can be distracting for long-term investors, ETF costs may be higher than holding individual stocks. Lastly, leveraged ETFs could compound your losses.
Related Articles

Is Webull Legit and a Safe Trading Platform to Use?
Filip Dimkovski
May 25, 2021

An IQ Option Review: Is It a Safe Trading Platform?
Filip Dimkovski
December 23, 2024

Know This About the IronFX Broker
Filip Dimkovski
June 15, 2021

FXAIX vs. VOO ETF Comparison: Fees, Performance, and Risks
Andrew Moran
December 23, 2024

Can You Use MetaTrader 4 With IQ Option?
Andrew Moran
December 22, 2024
Related Posts
Andrew Moran
What are ETFs and How Do They Work?
Filip Dimkovski
How to Identify Good Long-Term ETFs to Invest In
Filip Dimkovski
Am I Too Old to Start Investing In ETFs?
Filip Dimkovski
Recommended Cannabis stocks or ETFs
Andia Rispah Igobwa
How Can Investing in ETFs Increase or Generate Capital?
Andrew Moran
Best Brokers for ETF Trading
Filip Dimkovski