Exchange-traded funds can help a portfolio thanks to their low operating costs, flexibility trading and better tax efficiency when compared to mutual funds. Generally, exchange-traded funds improve on mutual funds with the ability to trade them like stocks.
Exchange-traded funds can be traded regularly during the day, as opposed to mutual funds that only get traded once at the end of each day. Thus, exchange-traded funds have a fluid pricing throughout the day, so traders can capitalize on much smaller market movements, as opposed to having to wait over long periods of time as is the case with mutual funds.
Exchange-traded funds are available in virtually every major commodity or currency in the world. Investors can capitalize on just about any emerging or rapidly changing market with exchange-traded funds.
Exchange-traded funds also incur lower capital gains tax than do mutual funds due to the nature of their trading. Exchange-traded funds only incur capital gains tax when their owner sells them, as opposed to mutual funds, which incur capital gains tax over their entire life, regardless of changing hands.
Investing in exchange-traded funds can help investors simply by helping diversify their portfolios into different types of market movements, making a portfolio less vulnerable to the movements of the world market.