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Exchange-Traded Funds (ETFs) for Passive Investment
- Exchange-Traded Funds (ETFs) are an excellent tool for passive investors, offering diversification, cost efficiency, and ease of trading.
- ETFs are traded on stock exchanges like individual stocks, providing greater flexibility compared to mutual funds.
- Most ETFs track an index, allowing investors to gain broad market exposure without selecting individual stocks.
- One key advantage of ETFs is diversification, reducing the risk associated with investing in individual securities.
- ETFs are cost-effective and tax-efficient, with lower expense ratios and reduced capital gains compared to actively managed funds.
- These funds offer high liquidity, allowing investors to trade them throughout market hours.
- Various types of ETFs cater to different preferences, including index, sector, bond, global market, dividend, and core-satellite strategy-focused funds.
- Investors can employ dollar-cost averaging and periodic rebalancing to manage risks and enhance returns in passive investing.
- ETFs should be carefully selected to avoid overlap in holdings, ensuring effective diversification.
- Despite market fluctuations and tracking errors, ETFs remain a valuable option for passive investors looking to build long-term wealth.
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