Exchange Traded Funds (ETFs) have become immensely popular among investors these days. These are similar to index funds except that they generally trade like stocks on a stock exchange.

Here we list some advantages and disadvantages of investing in ETFs:

Advantage

1. Low Fees: ETFs have lower fees than index funds. For example, administration fees can be around 1% for S&P 500 trackers like SPY and IVV. However, for some exotic ETFs like Vanguard Emerging Markets ETF and Russell 2000 Index ETF.

2. Tax profitability. There is no capital gain/loss when you buy the ETF. You should sell when it makes sense to you.

3. Convenience: It is very easy to invest in ETFs in the same way as in stocks. You have to buy them the same way you would buy stocks.

Disadvantages

1. Disadvantages of index funds. As you get the advantages of the index fund (low fees), you also get many of its disadvantages! Since ETFs blindly follow the index, it means that you have shares of stocks that you might not like that are in that index.

2. Market spread. If you buy some rare ETFs, the bid/ask spread would be somewhat prominent. It can be easily avoided as long as you invest in a few prominent ETFs.

3. Convenience. The ease with which you can sell or buy the ETF can sometimes lead you to think that he sold an ETF too early and would have made more by holding it longer.