Young investors, if you want to diversify your portfolio, invest in ETFs. Let this article tell you why.

Since its introduction in the late 1980s and early 1990s, the available exchange-traded funds have expanded, encompassing each asset class such as bonds, commodities, currencies, international investments, real estate, and stocks. There are also numerous inverse ETFs and leveraged ETFs to choose from. These funds provide several investment choices, which are not available with index funds. Having said that, an investor can establish a diversified portfolio using a lower outlay of capital and incorporating advanced management strategies.

Most ETFs are very liquid and may be traded throughout the day, unlike index mutual funds that are valued only at the end of the business day. This feature enables investors to use the funds for intraday trading like stocks. However, this is a vital factor for those who want to exit a losing investment immediately in order to maintain capital.

Also, its inception resulted to proliferation of sector ETFs, making it easier for investors to integrate sector-focused strategies. It allow investors to take bullish or bearish positions in particular sectors or markets. For instance, environmentally-conscious investors may venture in funds they find appealing like biotech and clean energy. But investing on these funds means incorporating more analysis and understanding how stocks are categorized into different sectors.

ETFs allow young investors to manage their investments based on their preferences, either active, passive, or a combination of both. Active management involves hands-on approach and selection of certain sectors or stocks in order to surpass the market. Conversely, passive management entails investing in one or more market indexes. If not familiar with its complexities, it is advisable to implement a passive management approach at first, then use a more active style as the investing knowledge increases.

Through the years, ETF issuers have been launching new, innovative funds, putting them at the leading edge. They also have responded to demand for products in red-hot sectors. ETF providers’ dynamism and innovation appeal young investors since they can trail investment trends and demands to come up with new (or better) products.

Young investors, before venturing in ETFs, be mindful of its disadvantages. One drawback is the commissions paid on every trade, not to mention the likelihood of a deterrence for periodic investments.