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ETF Specialist

Overestimating Your Sophistication

Sometimes the simplest solution is the best.

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Mutual funds are still the primary investment vehicle used by retail investors, but exchange-traded funds have dramatically changed the landscape. Many investors have chosen some exotic ETFs because many noncore mutual funds have a number of restrictions that limit their availability to the average investor. For instance, some mutual funds impose investment minimums and have different share classes that charge varying fees based on how large your investment is. Moreover, the menu of available funds could vary depending on which brokerage an investor transacts through. Even higher hurdles exist with hedge funds and managed futures strategies, which are available only to accredited investors with a net worth greater than $1 million.

Many of those barriers no longer exist; ETFs have democratized investing by making several previously inaccessible asset classes available to the masses. One of the simple and best examples of this is gold. Through  SPDR Gold Shares (GLD), any investor can own shares in physical gold bars held in a bank vault in London, which rids investors of the inefficiencies and inconveniences associated with transporting and storing gold.

Timothy Strauts has a position in the following securities mentioned above: XLF. Find out about Morningstar’s editorial policies.