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One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them.

I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds?

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One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them.

I am pretty sure that this is a subjective idea. The fact is you may buy GOOG, AAPL, F or whatever you wish(ETF as well, such as QQQ, SPY etc.) and keep them for a long time. In both cases, if you do not want to keep an on the market it is ok. Because, if you keep them it is called investment(the idea is collecting dividends etc.), if you are day trading then is it called speculation, because you main goal is to earn by buying and selling, of course you may loose as well. So, you do not care about dividends or owning some percent of the company. As, ETFs are derived instruments, their volatility depends on the volatility of the related shares.

I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds?

Liquidity(ability to turn cash) could create high volatility which means high risk and high reward. From this point of view mutual funds are more safe. Because, money managers know how to diversify the total portfolio and manage income under any market conditions.

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ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day).

One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased.

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In my opinion, if you are doing long-term investing, this is a non-issue. The difference of hours in being able to trade an ETF during the day vs. only being able to trade a traditional mutual fund at day-end is irrelevant if you are holding the investment for a long time.

If you are engaging in day trading, market timing, or other advanced/controversial trading practices, then I suppose it could make a difference.

For the way I invest (index funds, long-term, set-it-and-forget-it), ETFs have no advantage over traditional mutual funds.

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    Mutual funds typically have higher fees, the actively managed ones have much higher fees (average is double vs. ETF). – misantroop May 8 '17 at 12:06
  • @misantroop Only if you are comparing apples to oranges. A good no load, passively managed mutual fund can have very low expenses whether or not it is an ETF. – Ben Miller - Remember Monica May 8 '17 at 12:08
  • Often, the fees in mutual funds are a function of the size of the account, and for smaller investors can favor ETFs . For example, Vanguard's ETFs have expense ratios equivalent to their "Admiral Class" mutual funds, which require $10k-$100k invested (depending on the specific fund). Their "investor-class" funds have slightly higher fees (plus there's a minimum balance to open a mutual fund that is higher than the ETF share price). – PGnome May 8 '17 at 16:48

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