Normally, ETFs have lower average costs because it is really expensive for investors to purchase all the stocks in an individual portfolio. This is the pros and cons in ETFs. It means that there would be only a few trading activities for investors due to one transaction to buy and sell. So, brokers would charge commission from each trade. But some brokers do not charge, in exchange, they would reduce costs for investors.
You should know that there is a term called an ETFs expense ratio. This is the cost to operate as well as manage the fund. The low expense of ETFs could occur where it tracks an index. The epitome would be, if an ETF tracks the S&P 500 Index, it could consist of all 500 stocks of the S&P. Thus, the fund is passively managed. In other words, it is less time-intensive. However, ETFs track indexes in a passive manner. The expense ratio could therefore be higher.
Therefore, an ETF has pros and cons. The pros of an ETF occurs in many ways. The first is because it has access to many stocks in many sectors or industries. Most people choose an ETF because the expense ratio is low, plus there are only a few brokers charging for commissions. Next, the risk management in an ETF is through diversification.
People who are on the cons believe that if they choose actively managed ETFs, it means that they must pay higher fees. Then, they argue that there is a limit in diversification especially in the single-industry-focused ETFs. Furthermore, they experienced that it could lack liquidity thus it may hinder transactions.
