Should You Invest in ETFs or Should You Invest in Mutual Funds?
Sam Subramanian PhD, MBA
Exchange-traded funds and mutual funds have their advantages and disadvantages.
While investors often ponder if they should invest in ETFs or mutual funds, there is no reason to.
Investors can use ETFs as well as mutual funds in appropriate ways to benefit from the advantages of both.
- Transparency: ETFs usually disclose their holdings each day, making it easy for investors to know what they are investing in.
- Trading flexibility: Investors can buy & sell ETFs through the day whenever the stock market is open.
- Management expense: ETF expense ratios tend to be lower than mutual fund expense ratios.
- Tax efficiency: The structure of ETFs may lend themselves to be more tax efficient.
Mutual Fund Advantages
- Active security selection: Mutual funds can benefit from in-depth research & analysis conducted by money managers to uncover investments with superior risk-adjusted return.
- Periodic investing: Mutual funds make it easy for investors to invest small amounts without commissions at regular intervals through automatic investment plans.
- Trading costs: Many no load mutual funds are available without transaction fees in mutual fund networks like Fidelity FundsNetwork or Schwab OneSource.
Invest in ETFs and Mutual Funds to Maximize Benefits
All too often, investors make a mistake by focusing on pre-tax return when comparing investments.
It is difficult to predict with any degree of certainty which of the two ... a particular ETF or a comparable mutual fund ... would deliver a higher pre-tax return during its holding period.
Investors would be better off focusing on predictable factors like total cost of owning investments and taxes on an account-specific basis as this can improve the odds of maximizing return.
Generally, mutual funds are better suited for smaller-sized accounts while ETFs are better suited for larger-sized accounts.
ETFs are better suited for accounts with a trading objective. Many mutual funds impose penalties or place restrictions to discourage frequent trading.
ETFs are more appropriate for taxable accounts where investors can realize the tax efficiency benefit of ETFs. Mutual funds on the other hand are better suited for tax-deferred accounts.
In sum, one does not have to avoid ETFs simply because one invests in mutual funds and vice versa. Investors have the option of investing in both ETFs and mutual funds. Investors can maximize benefits by including both ETFs and mutual funds in appropriate accounts considering size, investment objective, and tax status.
AlphaProfit's Free Investment Newsletter MoneyMatters
Sign up for AlphaProfit's FREE investment newsletter MoneyMatters and get two special reports:
Five Smart Ways of Using Fidelity Select Funds and Avoid Three Common Mistakes ETF Investors Make
Learn more about:
Best ETFs and best mutual funds currently recommended in AlphaProfit's award-winning Premium Service
AlphaProfit Premium Service Hulbert Financial Digest Rankings
ETF investing basics
AlphaProfit Free and Premium Investment Newsletters
Protect & grow your wealth with
investment recommendations from free e-letter
By Hulbert #1 rank winner Dr. Sam Subramanian
'Incisive Insights, Impressive Results' - Jim Woodruff
About AlphaProfit MoneyMatters and AlphaProfit
AlphaProfit MoneyMatters is a free e-letter distributed to registered users of AlphaProfit's website. The e-letter analyzes the economy, markets, and sectors and provides money-making insights on stocks, exchange-traded funds, and mutual funds.
AlphaProfit MoneyMatters is edited by Dr. Sam Subramanian acclaimed for his financial acumen and analytical skills.
AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector
Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios
with Fidelity funds and exchange-traded funds.
It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won
the coveted #1 rank from Hulbert Financial
Copyright Policy and Fair Use Guide
You are welcome to quote a short excerpt of the article not exceeding 100 words with attribution in the form of a hyperlink to the article's
full URL or https://www.alphaprofit.com. If you wish to republish the article in full on
your website, blog, or other media, you must obtain permission.
AlphaProfit MoneyMatters™ is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Factual material is obtained from sources believed
to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any
of the investment companies, brokers or entities connected with the securities mentioned herein. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at
www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of the AlphaProfit MoneyMatters.
This page is best viewed in 1024 by 768 pixels screen resolution or higher.
Copyright © 2014 AlphaProfit Investments, LLC. All rights reserved.