What is better: ETFs or Mutual funds?
Is there any proof as to what performs the best? It seems like ETFs given their lower fees would be better and they are more liquid?
Hi - ETFs and mutual funds are similar in their objective: gaining investment exposure to a specific segment of the stock or bond markets or to the markets as a whole. Most ETFs follow an index and are not actively managed although actively managed ETFs are being issued. Mutual funds are primarily actively managed but there are many mutual funds that track an index. ETFs trade like stocks and must be purchased in whole share amounts. You can watch the value of an ETF fluctuate during market hours just like a stock. Mutual funds don't trade but are issued and redeemed (cashed out) by the issuing fund family. Mutual funds are priced at the end of the trading day so you don't know what price you pay when you buy or what price you receive when you sell until the next day. Buys of mutual funds are usually done in dollar amounts instead of shares for this reason. As a professional investment adviser I prefer using ETFs for many of my clients. I use mutual funds for smaller accounts and in situations where I want active management such as in emerging markets. I hope this helps. | 09.04.14 @ 22:38
I would disagree with Kim in that ETFs are passively managed and follow an index while mutual funds are primarily actively managed. This was true when ETFs first came out but now you can find a wide array of both actively and passively managed ETFs and Mutual Funds. The main difference as Kim mentioned is that ETFs trade on market like a stock providing greater liquidity. This means you can buy and sell anytime as long as the market is opened. We use ETFs in all of our clients' portfolios and prefer them to mutual funds for this reason. However, whether a fund is set up as a traditional mutual fund or ETF should have minimal impact on the performance. It is said that ETFs are more tax efficient, another reason why we utilize ETF more often than mutual funds. Side note: don't ever purchase a mutual fund with a "Sales Load." These are class A, B, and C shares. Don't do it. It's just an extra cost that is not necessary in today's world. It's just a way for an advisor to get more fees from you. | 07.28.15 @ 18:59
Yes, ETFs are clearly much better, Total fund inflows favor ETFs over mutual funds, and ETFs often have lower fees and far better liquidity. Yale's legendary CIO, David Swensen makes the best case for ETF portfolios in his book, "Unconventional Success." | 01.12.16 @ 20:38
Let's invert the question. What does "best" mean for you?
Passive investments generally have lower fees than active ones. This does not imply that they offer a greater ROI. For that we need to look at the other side of the equation.
This is a question I often get::
Client is half way into a 20 yr plan. Client requires an 8% CAGR and only getting a 4% CAGR
*CAGR is Compound Annual Growth rate (this is not the same as average rate of return)
There are 4 solutions to this problem;
1). Increase your time (maybe add 20 yrs onto your retirement age)
2) Increase your contributions (double (more out of pocket-maybe double it)
3). decrease your lifestyle expenses (maybe cut them in half)
Those are the financial planning solutions
Yes,Ii said there are 4 solutions. The other one is the Investment Management solution:
4), Double the rate of return to 16% CAGR. this is the mathematical solution and the one that we prefer.
We have both integrity and experience in this field. The choice is yours. always do what is in your best interest.
Lastly, charging a fee for "modifying" your plan that obviously isn't working is not a solution.
It's not what you make, It's what you keep that determines your lifestyle.
Send me a message to discuss. No obligation
| 03.17.16 @ 20:46