4. Stay liquid. There is nothing I hate more than barriers to accessing my money. With an ETF you are able to buy and sell whenever you want with virtually no restrictions on trading. This means you can free up cash or get moved from one asset class to another whenever you want. There are no short-term redemption fees, back end sales loads, redemption windows, or other roadblock that will prevent you from making a withdrawal from an ETF.
The only thing you will pay is the small trading commission for your broker to sell the shares. Mutual funds, hedge funds, annuities, private placements and other illiquid securities often times make it difficult to withdraw your money if you need it in a hurry.
5. Reinvest dividends for total return. One of the more advanced options for income investors to consider with their ETF portfolio is to have their dividends reinvested in fractional shares. Many brokers now provide you with the ability to compound your original investment by adding to the position when dividends are distributed instead of taking them as cash. This is an excellent strategy to consider if you don’t need to withdraw the cash distributions from your ETFs and want to increase your allocation size. This is the method that I employ with my retirement accounts in long-term holdings that I want to expand over time, such as the iShares Select Dividend ETF (DVY).
The Final Word
No matter how your portfolio is positioned, I believe that ETFs offer a very unique and flexible platform for both long-term investors and short-term traders. That is why they are a large component of my clients’ portfolios and will continue to expand as stodgy mutual fund investors migrate away from antiquated products.
David Fabian is the Chief Operations Officer and Managing Partner of Fabian Capital Management. To get more investor insights from Fabian Capital visit their blog here or click here to download their latest special report, The Strategic Approach to Income Investing.