As mentioned here in our ETF Pilot Post … We wanted to update and organize our thinking on “Exchange Traded Funds” in part due to their popularity and explosive growth…
Just as a reminder, in the context of ETF’s and Mutual Funds (MF) we are talking about baskets of Assets rather than a specific individual Asset – Think Stock, Bond or almost any other type of individual Asset – just bundled together as an ETF for MF for diversification and ease!
ETF’s V Mutual Funds – Key Concepts
Trading/Liquidity – ETF’s Trade continuously throughout the day, Mutual Funds trade at settlement or end of the day
Costs Internal and Transactional – ETF’s gained popularity due to lower internal costs, shaking assets from many Mutual Funds – Costs across the board have greatly reduced over the last decade, all of which are much better for us as investors. With the proliferation of free transaction costs, ETF’s garnered free trading (nothing is free as there are slippage costs – more to come) and while Mutual Funds costs are coming down, on average may have a small transaction charge for buying or selling.
Taxes – ETF’s mostly gaining their popularity from the almighty SPY – SP 500 AKA Spider, were tied to indexes making them more tax efficient, fast forward to new laws, broadened usages, and the field has changed today and can be a case by case situation.
Minimum Investment – ETF’s can be purchased for as few of as one share, while many Mutual Funds have minimums in some cases as high as Millions. Worth noting, Mutual Funds minimums in many cases have been waived, but some do still exist.
Wow…this is fun and educational – with such Broad use there are so many places we can go, we are excited and somewhat challenged to keep this short! Will do our best!
Have a Great “ETF V MF” Analyzed Day!
John A. Kvale CFA, CFP
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Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
