Which is best: ETF’s or mutual funds? Independent financial advice

    Investment choices: passive ETF’s versus actively managed open-end mutual funds

Reasons for ETF’s:

* Lower annual fee

* Lower broker fee than mutual fund

* Trades during the trading day

* Smaller minimum purchases than mutual funds

* No distribution pass-through tax trap

 

Reasons for mutual funds:

* Actively managed funds seek to become aware of risks and try avoid mistakes made by blind, passive investing

* Some screens of best performing active mutual funds showed mutual funds beating passive ETF’s, however past performance should not be relied on for future performance.

* Annual fees for “I” class mutual funds are not that much higher than ETF’s

* No concern about illiquid, hard to trade shares

* No need to be concerned with spread between bid and ask that may occur in ETF’s

* Buy at NAV (if no load), by contrast ETF’s may not track NAV

* Suffered less problems during May 6, 2010 flash crash than ETF’s. 90% of the problems that day were in ETF’s.

* Mutual funds do not lend out shares of the stocks they own to short sellers; some ETF’s do.

    Conclusion: Because of investor’s need for guidance I believe that actively managed mutual funds are better than passive ETF’s. For example see “Stock ownership lasts 22 seconds” to see how program trading can interfere with investments made by ordinary investors.

    This is an example of independent financial advice.

2017-01-10T23:32:33-08:00 April 7th, 2011|mayflowercapital blog|Comments Off on Which is best: ETF’s or mutual funds? Independent financial advice

About the Author:

mm
Donald Martin has a B.A. in Accounting and M.B.A. Finance, and has passed the rigorous CFP® exam and met the experience requirements needed to become a CERTIFIED FINANCIAL PLANNER™ professional. He has been employed in the financial services industries for 30 years and has been investing for his own account for 38 years. Donald Martin’s 19 year career in lending prepared him for fixed income analysis, Securities analysis, and macro-economic analysis used for investing. Donald Martin founded Mayflower Capital in 1993 to provide independent financial advice and implementation of advice about loans. In 2005 Donald Martin changed the company’s mission to providing independent financial advice about investments and financial planning and stopped providing loan services. Donald Martin has a B.A. in Accounting and M.B.A. Finance, and has passed the rigorous CFP® exam and met the experience requirements needed to become a CERTIFIED FINANCIAL PLANNER™ professional. He has been employed in the financial services industries for 30 years and has been investing for his own account for 38 years.