Having a diverse portfolio is one of the most important rules for an investor of any kind. Diversity is key in reducing risk and can even mean higher returns if the investment is right. Sometimes, however, diversifying can mean spending a lot of money and having too many investments for one person to manage. Luckily, there are funds that can make this process easier.
For those looking to easily and quickly diversify their portfolio, ETFs and mutual funds are a great way for individual investors to tap into many different sectors at once. Mutual funds have been the route for years for those looking at this kind of investment. ETFs, however, are more recent and are giving investors another option for individuals looking to diversify.
Mutual funds and exchange-traded funds sound so similar and both have a similar outcome. They allow a less risky avenue to diversify your portfolio by making one purchase, grant you to profit from a range of securities, and are both managed by a trusted advisor. Though quite similar, these funds have many differences and appeal to individuals for different reasons.
As always, Alpen Partners would like to help you with this confusion. To help you make your decision, let’s lay out what each kind of fund is, what makes them different, and which works best for you.
An exchange-traded fund, or ETF, is a security that tracks a commodity, bonds, basket of assets, or index, that are traded like a stock on the stock exchange. With a high daily liquidity and lower fees than mutual fund shares, they experience daily price changes as they are bought and sold. ETFs are very a very popular alternative for investors.
There are many advantages to investing in ETFs. For one, investors gain the diversification of an index fund. ETFs track a wide range of stocks that are trying to mimic the returns of a country or group of countries, similar to mutual funds. Many different funds exist, from international ETFs, regional ETFs and simply country-specific ETFs. There are also market niches.
The exchange-traded funds make it easy for investors to build their portfolio by meeting asset allocation needs.
A mutual fund is a pool of funds collected from investors that are invested into stocks, bonds, money market instruments and more. These funds are controlled by money managers who distribute the money in order to produce capital gains or income for the individual investors.
Like other kinds of funds, like ETFs, mutual funds are great for diversification. They allow investors to gain from investment types they may not invest in individually – with less risk. Investing in individual companies and hedging them with other individual investment purchases can become costly. Mutual funds allow for a less expensive way to diversify a portfolio with a single purchase.
Mutual funds are both investments and companies. The same way a person buys a share of a company, they buy part ownership of a mutual fund and the assets within. Instead of producing a product or service, a mutual fund company makes investments.
When it comes to choosing between the two, it really comes down to personal preference. Each has their advantages and disadvantages. While ETFs are less expensive, many are not concerned with the price and would like to fully rely on the trusted experience of a mutual fund’s staff.
Mutual funds and ETFs trade differently, which is why some people choose ETFs over mutual funds. This is because ETFs are more flexible than mutual funds. With mutual funds, purchases and sales take place between investors and the fund. Prices are determined at the end of a business day, when the net asset value is determined. ETFs, however, are traded by institutional investors and can be traded throughout the day like stocks, and can be sold short.
ETFs also are generally less expensive than mutual funds in that there are fewer fees that come along with the funds. Expense ratios for ETFs range from approximately .10% to 1.25% as opposed to the .01% to 10% per year found in other funds. If cost is not an issue. A mutual fund could benefit you if you are looking for a less hands-on investment.
ETFs allow for more hands-on access to the pricing of the investment as well. With an ETF, the pricing is in real-time. Mutual funds will only trade at the same price throughout the day. ETFs can also some attractive tax benefits. Most of the tax on capital gains is paid on sale and is completely dependent on the investor. Investors trading large volumes of ETFs have the ability to redeem them for shares of stocks that the ETFs track, minimizing tax implications. For the investor because they can defer most tax until the investment is sold.
Alpen Partners Wealth Management International AG, the sister company of Alpen Partners AG, is now a registered investment advisor at the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.
Building on many years of experience in private banking in Switzerland, Alpen Partners Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well known for being sophisticated and discreet. In 2017, it was reported that $7.5 trillion in assets are held in Swiss banks and almost 51% of that is generated from clients outside of the country. Choosing Switzerland as a banking destination is choosing years and years of financial stability and growth.
The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best-capitalized banks in the world.
No matter the problem, Alpen Partners will handcraft a solution for you. We know that there is no one-size-fits-all when it comes to financial success. Our approach involves working with our clients to make a unique plan to meet their needs. Rest assured that we will work hard to guide you through the process of meeting your financial and personal goals.
Contact us to enhance your financial plan today.