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Fixed Income ETF: Pros and Cons

Fixed Income ETF: Pros and Cons

Trading and investing in the world of finance can be a frighteningly confusing though potentially lucrative venture. The stock market is frequently fickle, swinging dramatically up and down in response to global or local economics, natural disasters, temperature fluxuations, or even simple rumors. This can make it scary for people who simply want a way to invest and hopefully gain some money for retirement or other future use, as opposed to those who make a career of this sort of business. For such people, it may be worth considering a fixed income ETF.

Being on a fixed income makes it especially hard to risk any money. When you know that you will only get a certain amount of money each month, it is scary to consider that any part of that money might be lost. However, this fear should not keep you from investing when you want to. This is where a fixed income ETF can be handy.

Unlike single stocks, a fixed income ETF is well diversified, covering multiple securities at once. This diversification helps balance out risk, making ETF’s more stable and secure than other investments. This makes it a wise decision for people who are cautious about the stock market. While a fixed income ETF will stil respond to rises and falls in the stock market, they tend to respond with much less dramatic swings than individual stock investments or other things like that. They also tend to come back up more smoothly and reliably after a drop in the market.

Mutual funds tend to offer the same benefit of diversification, but there is another area where a fixed income ETF has the advantage over mutual funds: price. There is a very low cost associated with ETF’s, making it easier for those with fixed or limited incomes to take part in them. As with all things on the market, the more you invest, the greater your potential for gains, but the minimum price for investment in a fixed income ETF is lower than that of mutual funds, making it a smart choice for those with limited finances.

The other benefit of a fixed income ETF is that these investments are more safe tax-wise than mutual funds. Investors in mutual funds can be left holding the bag when it comes to taxes based on decisions that the fund manager makes. But with a fixed income ETF, the same risks are not in place. The way the trades are performed are different, removing that risk of liability.

On the flip side, because fixed income ETF‘s are fairly new, they don’t cover all the options available on the market. As time passes, they likely will incorporate other options, though. The other downside is that every investment into a fixed income ETF requires a commission to a broker, so many small trades can wind up adding up. Certain brokers are working to fix this, however, by offering many trades for one flat rate or other deals such as that.

As with all investments, there is always a risk of loss. However, with the greater stability of fixed income ETF‘s, these are a great choice for people with limited finances who want to begin investing.

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