View the entire Frequently Asked Questions (FAQs)
Why do you use ETFs in your portfolio instead of individual stocks and bonds?
We use ETFs in our portfolios because we believe ETFs have various advantages. ETFs are a convenient way to diversify an asset class in a portfolio. Opting for few ETFs in a portfolio is preferable to opting for few thousand individual stocks to achieve the same level of diversification of the portfolio. This is in spite of the ETF management fees incurred for each of the ETF, if we opt for ETFs.
Other costs include trading fees and bid-ask spreads. Trading fees are lower if we opt for fewer ETFs instead of few thousand individual stocks. Bid-ask spread can be low for ETFs that we prefer in our Portfolios, whereas the bid-ask spread can be high for certain specific individual stocks with low liquidity. (Please note that the trading fees is included in our QuietGrowth fee, whereas the ETF management fees and bid-ask spreads are incurred by you. Refer to our pricing page for more information.)
Similar is the case of opting for bond ETFs instead of individual bonds.
There are other advantages for opting for ETFs. Whenever we modify the portfolio mix by altering the allocation of various asset classes, it is easier to implement that modification when we use ETFs to represent these asset classes. Sometimes, ETFs can also be more tax efficient because of lesser realised capital gains tax incurred by the ETF issuer while managing that ETF, compared to us trying to replicate that ETF ourselves by buying and selling a large number of individual stocks.
That said, the innovation of direct indexing by automated investment management services has emerged in the U.S since 2015. We are positive about this. Using this method, QuietGrowth can opt for individual stocks instead of ETFs. We at QuietGrowth will not be introducing this at least for sometime.