“ETFs: The Shock Absorbers of Market Volatility – What Investors Need to Know”

The surge in market volatility has prompted many investors to reevaluate their portfolios, with a significant number turning to exchange-traded funds (ETFs) for a fresh approach. According to BlackRock, the ETF market has doubled in size since the pandemic, reaching $7.1 trillion by the end of the first quarter of this year. This represents 13% of the US stock market and 2.8% of the US bond market, up from $3.5 trillion in 2019.

Todd Sohn, ETF strategist at Strategas Asset Management, recently discussed the advantages and disadvantages of ETFs for investors on Yahoo Finance’s Stocks in Translation podcast. One key advantage of ETFs is their cost-effectiveness, with fees plummeting due to the competition among major brokers to offer zero commissions.

Sohn highlighted that investors can purchase an S&P 500 fund for as low as 2 or 3 basis points, making it a cost-effective option compared to buying individual stocks. Additionally, ETFs provide access to a wide range of markets and strategies, essential for diversification. They offer transparency by reporting holdings daily and provide intraday liquidity, allowing investors to trade throughout the day.

Furthermore, ETFs have evolved to mimic hedge fund strategies, such as smart beta ETFs, which use predetermined rules for selecting investments in a fund. Sohn emphasized that ETFs offer significant tax advantages, making them a valuable investment option.

During times of market stress and volatility, ETFs can act as “shock absorbers,” helping to mitigate risk for investors. Sohn noted that ETFs have great value in volatile environments, smoothing out market structures and providing stability.

In conclusion, ETFs have become a popular choice for investors seeking cost-effective, diversified, and transparent investment options. Their ability to provide intraday liquidity, tax advantages, and act as shock absorbers during market turbulence makes them a valuable tool in a well-rounded investment portfolio.

For more insightful discussions and analysis on investing, tune in to Yahoo Finance’s Stocks in Translation podcast for essential conversations and insights from industry experts. You can find more episodes on the video hub or listen and subscribe on Apple Podcasts, Spotify, or your preferred streaming service. Stay informed with the latest stock market news and in-depth analysis from Yahoo Finance.