The hidden perils of ETFs
You can save money and diversify with these cheap index funds, but watch out for the pitfalls.
You can trade an ETF only if there's another investor willing to deal.
Danger: This isn't a problem with big ETFs, but can add hidden costs to small ones, especially if you trade often. These funds may have high "bid/ask" ratios, meaning you pay a few more cents per share to buy and get a few cents less when you sell. Matt Hougan of IndexUniverse says to avoid trading a fund with a ratio above 0.2%.
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Danger: This isn't a problem with big ETFs, but can add hidden costs to small ones, especially if you trade often. These funds may have high "bid/ask" ratios, meaning you pay a few more cents per share to buy and get a few cents less when you sell. Matt Hougan of IndexUniverse says to avoid trading a fund with a ratio above 0.2%.
NEXT: Premium or discount prices