Warren Buffett has repeatedly advised retail investors to buy ETFs.
What are the advantages of ETF?
First of all, ETF overcomes the shortcomings of closed-end fund discount trading. ETF funds can be traded in the secondary market, or they can directly purchase and redeem a basket of stocks from fund managers, which makes it possible for investors to arbitrage in the primary and secondary markets. It is the existence of this arbitrage mechanism that inhibits the deviation between the secondary market price and the net fund value, making the transaction price in the secondary market basically the same as the net fund value.
Secondly, compared with other open-end funds, ETF funds have the characteristics of low transaction cost, convenient transaction and high transaction efficiency. In the past, when investors invested in open-end funds, they generally bought and redeemed funds from fund management companies through banks, brokers and other consignment agencies. The transaction fee is generally 1%- 1.5%, while ETF only needs to pay 0.5% of bilateral fee at most. Generally, the redemption money of open-end funds will not arrive until 3 days (at least 7 days) after redemption. Buying different funds requires going to different fund companies or banks and other institutions, which is not convenient for investors to trade. However, if you invest in ETF funds, you can trade directly through the exchange according to the public quotation, just like buying and selling stocks and closed-end funds, and the funds will arrive the next day.
In addition, ETF generally adopts a completely passive indexation investment strategy to track and fit a representative underlying index, so the management fee is very low (0.5%) and the operation transparency is very high, which enables investors to invest in the constituent stocks in a basket of underlying indexes at a lower cost, fully diversify their investments and effectively avoid the unsystematic risks of stock investment.