ETFs can also be used to segment part of your portfolio into various niches that interest you. And the story gets sweeter.

You can even buy ETFs without paying a commission as I wrote about recently.

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That being the case, it might seem like a no-brainer to buy ETFs — especially the commission free version. But I suggest that you slow down. Not having to pay commissions on ETF trades sounds like a great deal. And it can be. But there are some negatives to be aware of before you completely move your portfolio to only ETFs. The most obvious upside to the commission-free ETFs offered by your broker is that you will never pay a commission on those specific ETFs.

That means that if you research the ETF carefully you could build an entire diversified portfolio, enjoy the minimal expense ratios, and not pay an extra dime in fees to the broker.

Another upside is you can trade in and out of ETFs during the day. ETFs are traded like stocks on the stock exchanges so you can buy and sell whenever you like. Please note that some brokers charge you a fee if you trade out of a commission free ETF within 30 days of purchase. Never paying a commission to invest in an ETF means you can continue to dollar cost average your portfolio.

The commissions eat up the expense ratio savings and then some.

What Your Broker Won't Tell You About Commission Free ETFs

Of course there are some downsides with any investment, and commission-free ETFs are no exception. The first major issue is that only a select number of ETFs get the commission-free treatment at most brokerage firms.

Your ability to build a complete portfolio will be determined by which ETFs are offered and whether or not they fit into your desired portfolio. If you want to invest in this type of investment, you have to accept that there is a spread that impacts you. Often the broker only offers commission free ETFs that have very little volume. As liquidity declines the spread between ask and bid widens. That can be very expensive for traders.

If you only trade commission free ETFs you could end up spending a lot more money on this spread than you save with the commissions. Even if you technically can put together a portfolio using ETFs it may not be as well diversified as a different mutual fund option or commission-required ETF.

Whether or not you should invest with commission-free ETFs over other ETFs or mutual funds depends on your investing goals. If you can legitimately use the ETFs offered without commission, there is no reason to not use them.

If it is a bit of a stretch for you to justify using those specific ETFs you may be better off with a mutual fund or a commissioned ETF. Your email address will not be published.

Commission-Free ETFs Aren’t What They Seem - Wealthfront Knowledge Center

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The Benefits of Revenue‐Weighted ETFs | OppenheimerFunds

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