Exchange Traded Funds vs Mutual Funds
Why buy mutual funds when you can be owning an Exchange Traded Fund (ETF)? Mutual funds have limited liquidity in that you can only buy and sell mutual funds at the end of the day. Plus exorbitant fees charged investors average 1.5%.
Mutual funds are only required to declare their investment holding twice a year. Investors in funds are in the blind and not sure what they own until it is disclosed.
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.
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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.
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