In recent years, market volatility has led investors to reevaluate their portfolios, with many turning to exchange-traded funds (ETFs) as a viable option for their investment needs. Since the onset of the pandemic, the ETF market has seen significant growth, doubling in size to reach $7.1 trillion by the end of the first quarter of this year. This represents 13% of the US stock market and 2.8% of the US bond market, a substantial increase from $3.5 trillion in 2019.
Todd Sohn, ETF strategist at Strategas Asset Management, recently discussed the advantages and disadvantages of ETFs for investors on Yahoo Finance’s Stocks in Translation podcast. One of the key benefits of ETFs is their cost-efficiency, as fees have significantly decreased due to the race towards zero commissions among major brokers. For example, investors can access an S&P 500 fund for as little as 2 or 3 basis points, equating to just $3 for every $1,000 invested.
Beyond cost, ETFs provide investors with access to a wide range of markets and investment strategies, allowing for greater diversification in their portfolios. Sohn noted that ETFs offer investors the ability to invest in virtually any market around the globe, providing exposure to different asset classes and geographic regions.
Moreover, ETFs offer transparency and intraday liquidity, distinguishing them from traditional mutual funds. Investors can monitor their ETF holdings on a daily basis and have the flexibility to buy or sell them throughout the trading day. In addition, many ETFs offer tax advantages and can act as “shock absorbers” during times of market uncertainty, helping to mitigate risk and smooth out volatility.
As Sohn emphasized, ETFs have proven to be valuable tools for investors in volatile environments, offering stability and diversification across various market segments. Their ability to provide cost-effective access to a diverse range of investment opportunities makes them an attractive option for investors looking to navigate the complexities of the financial markets.
For more insights on ETFs and other investment strategies, tune in to Yahoo Finance’s Stocks in Translation podcast, where industry experts like Todd Sohn discuss the latest trends and opportunities in the world of finance. Stay informed and empowered to make the right decisions for your portfolio by staying connected to the latest news and analysis from Yahoo Finance.