Whats better mutual funds or ETFs in my IRA acct, is it true that ETFs have higher expenses?

Answer 1

ETFs, by far. And no, absolutely not. ETFs do NOT have higher expenses.

In fact, here's some facts on Mutual Funds and ETFs to help.

Overall, Mutual funds are not good (once you're educated) and you should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).

Here's why.

First of all, mutual funds exist to take average person's money.

Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds.

Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.

Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in not "losing" you lots of money.

Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.

Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.

Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).

Convniced yet? Need more?

Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc.

Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like microsoft, at&t, home depot, cisco, ebay which have been sideways for years? I think not.

A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but without the extra overhead!

See amex.com for more info (american stock exchange) or ishares.com, holders.com


You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many). Best of luck!

Let me know if you have further questions.

Answer 2

don't know what a ETF is but IRA'S and mutual funds are good though....a mutual fund is like putting your money into a share, you can choose from 3 different settings; 1. conservative investments, 2. moderate investments, 3. agressive investments. The more agressive the account, the more money you could possibly gain.... check into that......IRA's are very good long term investing, great for a retirement savings. The only thing about IRA's is that if you take the money out too soon you will be greatly penalized with fees depending on which kind you have. There are two IRA's, a regular IRA and a ROTH IRA. I forgot the difference between the two. Hope that helps!

Answer 3

ETFs have lower expenses than mutual funds and are traded on a stock exchange.

Google "ishares".