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| Maxxi2 • Messages: 4 • Years on forum: 11.3 |
04:54 PM 09/21/2014 |
There are more and more ETFs coming to the market. Should I prefer them vs. mutual funds?
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| Luke Perisin • Messages: 3 • Years on forum: 11.3 |
10:16 PM 09/21/2014 |
The biggest difference between ETF and a mutual fund is that a mutual fund is passively managed while ETF just tracks and index.
So the question is whether you believe that active management adds value. Some prominent investors beat S&P systematically (like Warren Buffet or Bill Miller from Legg Mason), while many don't. If you have an option to invest in such a fund and you trust in that investor than that makes sense. Otherwise ETF might be better.
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| Anne Prine • Messages: 5 • Years on forum: 11.2 |
11:21 PM 09/21/2014 |
ETF has the following differences:
- passively managed
- charges transaction and sales commissions while some mutual funds don't. This is important especially if you invest small sums and commissions are fixed like $8/transaction
- ETFs allow you to invest small amounts of money while many mutual funds expect you to invest $10000 or more. So it's harder to diversify with mutual funds
- ETFs don't provide many specific investment strategies which mutual funds do provide
- EFTs are more tax efficient than a mutual fund as there are no taxes on ETF basis
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| Maxxi2 • Messages: 4 • Years on forum: 11.3 |
06:32 PM 09/23/2014 |
Thanks, very helpful. Could you please elaborate your latest point?
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| Lana Dierking • Messages: 2 • Years on forum: 11.2 |
12:03 AM 09/26/2014 |
Mutual funds are taxed on a fund basic. Let's say you have bought a mutual fund in July, it gets 0% return until Jan, but in Jan-June it got 50% return. In this case the fund will be taxed after the year end for total 50% annual return and you will pay part of this tax as well as a mutual fund investor.
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