Mutual Funds vs Exchange Traded Funds

Owning mutual funds can be expensive when you consider the 1.5% average charge for advisory fees that go to the broker or financial planner that helps you select the funds. Exchange traded funds (ETF) can be your answer to greater flexibility at a lower cost.

When you purchase a mutual fund you are left in the dark as to what you are getting. Fund managers only are required to disclose their holdings twice a year and that comes with a 30-60 day time delay.

The S&P 500 Index EFT was the first Exchange Traded Fund. With one trade position, one could own the entire 500 companies of the S&P 500 with the street symbol SPY.

Professional traders keep the market price of ETFs in line with the value of the underlying stocks by arbitrage of any price disparities. Unlike mutual funds where their price may get distorted in regard to the underlying value, ETFs give a fair deal.

ETFs are liquid in that you can buy and sell them at any time. You can place stop-loss and limit order as protection. You can see the latest quote in real-time.

Also, ETF’s are inexpensive to own. The fees are less than 1% a year. For instance the SPY has an annualized net expense of 0.09 percent.

When you own an ETF you know exactly what you have invested in. There is no surprise in regards to anything mysterious. There is complete transparency.

Mutual fund manager’s results vary and it’s imperative that any investor does due diligence research. Often, an ETF in the same area of focus outperforms the fund.