So called exchange-traded funds (ETFs) represent an advanced form of mutual and index funds that confer several benefits which principally consist of lower costs and more efficient tax treatment.
One of the dirty secrets about ETFs is that they are known to expire, which means the ETF sponsors don’t get enough investors in the fund to make it profitable and shut it down. This phenomena is so common that there are scores of “ETF Deathwatch” sites.
If you are in a fund that gets shutdown, you will get your money back, which is good, but it’s likely to be an untimely distribution that can provoke unfortunate tax consequences. Also, you will have to find a new place to park your money.
Protect yourself by selecting ETFs that have at least two years of operating history and at least $1 billion in assets.
David R. Evanson is a financial journalist in Philadelphia.