Q. Are ETFs always better than mutual funds?
A. ETFs are just like mutual funds, with pools of money invested in some investment vehicles. The main difference is mostly in the “exchange-traded” part, because ETFs trade at anytime, where traditional mutual funds only trade once per day.
Comparing ETFs and mutual funds are just like comparing two different types of cars - one is built for speed and one is built for safety.
When compared with mutual funds, ETFs do have a few advantages:
However, the key ETF's advantage - ease of trading could make ETFs a bad investment choice for some investors because just like Vanguard found Jack Bogle said - when you give investors an easy to trade vehicle, they will trade. And we all know active trading has been proven usually lead to inferior investment results.
A. ETFs are just like mutual funds, with pools of money invested in some investment vehicles. The main difference is mostly in the “exchange-traded” part, because ETFs trade at anytime, where traditional mutual funds only trade once per day.
Comparing ETFs and mutual funds are just like comparing two different types of cars - one is built for speed and one is built for safety.
When compared with mutual funds, ETFs do have a few advantages:
- Ease of trading (you know the price you are buying or selling right away, instead of waiting till end of the day for mutual funds)
- Lower expense ratios.
- No front or back-end sales charges and redemption fees (although brokerage commissions do occur)
- ETFs can be structured with a very granular focus on a niche or an industry.
However, the key ETF's advantage - ease of trading could make ETFs a bad investment choice for some investors because just like Vanguard found Jack Bogle said - when you give investors an easy to trade vehicle, they will trade. And we all know active trading has been proven usually lead to inferior investment results.
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