ETF's VS. Mutual Funds. Which one is better?

Question

Which one do you think is better? Please state the reasons for your opinion.

Answer 1

Mutual funds are appropriate for some and the wrong investment for a growing number of people.

For me, I would NOT invest in mutual funds if it weren't for having a 401K.

Overall, Mutual funds are not good (once you're educated in investing) and many people 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. Over 60% of the mutual funds out there can't even outperform the market. That's VERY SAD!

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. That way you stay with them and they continue to collect their fees.

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. or right now, Brokers/Dealers, Retail, and insurance!

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 Times Warner, Microsoft, 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 high 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 with much less overhead!

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


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).

Let me know if you have further questions.

Best of luck!

Answer 2

It really depends.

ETF's Pro's Volatility This is good because if good news hits the market the ETF will shoot up a dollar or sometimes more. Trades like Stock so you can get the current price as the day progresses. Diversified with lots of chioces. Fees pending on the ones you get they are siginficantly lower than a comparable Mutual Fund. Clean image (so far) Elliot Spitzer hasn't slammed one of these ETF's to the ground yet. Mimimum investment Pending on the ETF you can pay as little as one share (with the approiate fees) thus giving you a chance to get your feet wet in the market. Buy it anytime the market is open and if you use a limit order you can get it at the price YOU want.

Cons Because they trade like a stock you have to pay a transaction fee (5-15 range) Volatility On bad news the ETF can lose a dollar or more before you know it. Sector driven ETF's have taken off in the past few years and stuff like the Silver ETF (slv) really screwed up the price of silver.

Mutual Funds

Pros One price one day. At the end of the day you see the final price and this reflects on how the market behaves that day. If the market came up and slipped at the end you are not buying it at a higher price. Fees No Loads have no commission fees and a lot of good funds have fees under 1%. Very Diversified lots of options. Low volaility. I have NEVER had a fund that gained or lost more than 1.00 a day

Cons. One price per day say you wanted to buy it at 2pm you have to wait until the market closes to see what the price of it will be unlike an etf where you can time the market or set your price. Regulation a lot of mutual funds have been hammered by Spitzer and pals for market timing and actually buying into the fund after closing. Low Volatility same as pro. I want to make money.

Thats just a few but bottom line if you are comfortable trading then buy ETF's if not go with a mutual fund (or just getting into the market for the first time ever)

My choice is ETF but then again I have been trading for a few years now.

And to comment on the post below mine you can put a stop loss on a MF if you want to. The keys to a good mutual fund are as follows Low expenses, stability, been around for at least 10 years can thrive in any market condition (hence the 10 year) and isn't under Spitzer scruinty. The Diamond ETF is over $100 per share to make it worth your while you need 10-20 shares and that makes it too rich for me. And EJ people do have experience in the market.

Answer 3

So you've found a good Mutual Fund (MF)?

What sets this one apart from all the others? Did it beat the Dow last year? No. If it can't beat the index it tracks, does that make it a "good" fund? No.

Let’s look at Investment Company of America (ICA), owned and operated by American Funds (AF). AF is an awesome fund company for a couple of reasons. There are several advantages and disadvantages:

1.AF is a private company which means they only answer to their MF holders. Fidelity is a good company also, but they are owned by stock holders. In the long run the company that only answers to you, the MF holder, is going to look out for your best interests.

2.AF also has some of the lowest annual fees to maintain an account of any MF company. All that being said, depending on your situation ICA may or may not be good for you. You need a competent advisor to help you with that.

3.I would be cautious with ICA as it is one of the largest MF in the world. They may seem like a good thing but it actually can be bad. It means it has much less flexibility to move its money around when conditions warrant it.

4.As far as EJ goes, they hire people on average who have very little experience in the industry, so at a minimum make sure your rep has a lot of experience and didn't just start last month at this. They also have agreements with companies like American Funds where their reps get a bigger commission to them then they do with other products. The concern being your advice from EJ might be tainted by the reps desire to get more commission. You need to work with an independent rep to assist you with you decisions; one who will give you all the information and doesn't have a hidden agenda.

Now let's look at MF's, in general, or the decision to use one at all.

If you invest in a MF, you have turned that responsibility over to someone else. To me, they are mostly the same, in general, in terms of results. Fewer than 10% can beat the Dow or other index it follows because of their fees. Why would you pay someone you don't know, whom will almost certainly underperform the market, an annual fee of 2.5% to do something you can do yourself, and do it better by buying an ETF, without any input from you after the initial purchase? An ETF is a publicly traded “Exchange Traded Fund, that trades just like a stock). Just buy the Diamonds (the DJIA ETF) if you want to let it ride on the Dow, or the Spyders (SPY - the S&P 500 ETF), or the Nasdaq (QQQQ), or diversify across the entire market by buying all three. The ETF's trade just like a stock or MF. If you want to diversify, and you want to Buy and Hold, buy an ETF.

A MF is always "in" the market, so you are at the mercy of the ups and downs of the Dow. You are unable to manage your risk with a MF, so you can't put a Protective Stop on a MF, at say 10%, to lock in your profits when the market goes down. You don't have a clue what's going to happen. That is not my idea of investing.

Actually, if done properly, it is more work to investigate all of the MF's and their advisors and their traders and their fees and their methods, than it is to investigate all the similar applicable info about stocks. To me, it's more like a conscious choice to be ignorant, to simply and blindly turn your money over to a stranger because they are "listed," like you do at a bank. Stocks are "listed," as are commodities and ETF's and everything else. With a mutual fund, you've just added a whole new set of unknowns to the equation.

The best you can do in any investment is try to increase your odds of success and reduce your risk. You can do these things yourself, but not in a mutual fund.

MF's are so 20th Century. Relics of the past. Unneccessary. Buy an ETF. Or sell an ETF short and bet on the downside. There are two sides to every market, not just the upside.

Answer 4

it is a math question, no longer an making an investment question. ETF expenditures 25000 x 0.12% = $30 + $25 fee = $fifty 5 Fund expenditures 25000 x 0.23% = $fifty seven.50 subsequently the ETF is a lot less, notwithstanding it is a daft question because there are countless, many subjective differences between an ETF and a mutual fund that is seen.

Answer 5

ETF's are a great new tool! I went with Charles Schwab and the trades are cheap and the service is great. They are very helpful is getting you started in self-directed investing!
Also, look at Master Trust, Cumulative preferred stocks, Oil sand trust, Oil shale trust, Forestry trust, Coal trust, High dividend yield stocks, etc:--its amazing how little most brokers know about these viable alternatives.

Answer 6

This penny stock service has years of proven experience. Ultimately it is the best service for beginners to use https://tr.im/aROah
You will have to wait between 3 and 10 days to get into the system in most cases. When I signed up it took 8 days. I wished it was faster, but if you can wait a week or two to start earn life changing money than you will have what it takes to make it in this business.

Answer 7

ETF's . They give you more control and better exposure to sectors that are hot, all without the management fees.