ETF’s vs Mutual 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 history of Exchange Traded Funds goes back to the first such instrument created, the S&P Depository Receipt known as SPDR. The shorthand symbol is SPY and is composed of the 500 companies that make up the S&P 500.
What makes ETFs unique is that they stay very close to their net asset value. The price of the ETF stock cannot drift too far above or below its actual value because professional traders will push it back in line quickly if they see disparity.
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.
The expenses to own an ETF is negligible. For instance, fees for SPY (S&P 500 index ETF) are pegged at 0.09 percent.
Best of all, ETFs are transparent and you always know what you are getting. You’ll know exactly what the market index is composed of. There is now wondering if your ETF owns something that you did not know about.
Many feel that EFT’s beat mutual funds by a large margin. Mutual funds have shortcomings that glare into the face of any serious investor. Unless one has complete faith in the fund manager for this type of “hands-off” negotiation one may get in trouble.
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