Benefits of ETFs & Inverse ETFs Vs. Mutual Funds

ETFs are Passive

Mutual funds are actively managed in an attempt to outperform the market. This is not something that beginner investors can do consistently without luck involved. Even a large number of veteran investors regularly lose money trying to outperform.

ETFs on the other hand are passive, meaning they track the market's performance instead of trying to beat it. Because it is simply aligning it's value with the assets being represented in the fund, only minor changes are required.

Actively Traded

ETFs provide the ability to actively buy & sell the fund in the same day, as many times as you'd like. Unfortunately, Mutual Funds do not offer this flexibility because they are priced only once per day after the markets have closed. Any attempt to open and close a position in a short period of time is heavily frowned upon, infact it can even get you banned from said Mutual Fund.

No Minimum Investment

ETFs reside on an exchange and trade like stocks, so the only minimum investment is the cost of a single share. If you would like to get started with a small amount of capital, this is a great investment option for you.

Naturally, it makes very little sense to purchase one share in an ETF, but it’s possible. Most mutual funds will have minimum requirements; many starting over $1,000 which can discourage a lot of new investors.

Easier to Diversify

The fact there’s no minimum investment with an ETF means you can easily diversify your portfolio. To achieve the same diversification with mutual funds you would need to start out with a larger amount of money. The average income individual would have enough to invest in 1-3 mutual funds only.

ETFs allow you to spread your assets and reduce the overall risk to your portfolio.

Tax Efficiency

Mutual funds lose a lot of their value when you take into account the tax burden. In an attempt to outperform the market, the fund's management often buys and sells assets. Each time these assets are sold for a profit capital gains taxes must be paid. As you can imagine, this could add up quickly the more active the fund is.

ETFs work exactly like stocks, so you only pay tax on the gains you make at the time of sale. As long as there is no sale, taxes are not paid. So if you purchased an ETF and sold it for a profit several years later, you would not pay any capital gains taxes until the actual year the sale took place.

Also like stocks, any losses incurred at the time of sale, can be deducted from your end of year taxable income.