Why you should own ETFs instead of Mutual Funds

ETF’s (exchange traded funds) are very similar to mutual funds except that they are traded during the day on an exchange and you can buy them through your broker.  The most popular ETF’s are the QQQ (Nasdaq 100) and SPIDR(S&P500).  Both of these “stocks” attempts to closely follow the underlying securities they represent.  The advantages of ETF’s are:

  • They are not “managed” by anyone, thus cutting way down on expenses.  They can represent anywhere from 30 – 3000 stocks in one security basket you can buy.
  • They follow the underlying securities very closely, usually within .05%
  • No monthly or yearly fees, just the usual broker cost to buy and sell.
  • They are very inexpensive compared to their mutual fund counterparts.
  • Extremely tax efficient as related to dividends and capital gains
  • Easy entry and exit anytime the market is open
  • Low risk compared to independent stock purchases since you are in essence buying 30+ stocks in one transaction.

ETF’s are the ideal way to invest in the stock market.  You have all the benefits of owning one stock, while also getting the low risk profile and low fees that you would get from mutual fund.  If you are an average consumer with little time to figure out you investment strategy, the easiest answer we give to anyone asking where to invest their money is to buy the S&P 500 (SPIDR) ETF from your broker.  You will automatically be buying the 500 of largest companies in the US in one transaction.

EFT’s are Much Better than Mutual Funds

Mutual funds don’t advertise that less than 15% of them have beat the S&P500 during the past 30 years.  It does not make sense to try and go find the 15% that do beat the S&P rather than just buying the S&P 500 ETF.

Be smart and don’t give your money away to Wall St. and mutual fund managers, invest in ETF’s and forget about all the hype.   If you want something a little more aggressive, there are currently over 150 ETF’s out there for you to select from.  Find one that is right for your investment profile and sleep well at night knowing you made the best financial decision for yourself, and your money is not going to an overpaid mutual fund manager.

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