Someone who knows investing and wants to involve themselves in big picture trends, ETFs or Exchange Traded Funds top Mutual Funds and are the way to go. You know whats going on in ETFs, they are easier to trade, and have lower fees.
Be A Control Freak.
The truth is that you are the only person truly concerned about how robust your portfolio is. If you are concerned about your kids health, you don’t rely on the school cafeteria to keep them healthy. They have motivations beyond wanting to keep your kids healthy, even ranging into political motivation that you don’t know about.
Sector specified Mutual Funds are usually handled by the less experienced staff members. They will be wanting to prove their value to their fund family, and growing your portfolio will be second to that goal. More experienced staff manage the larger mutual funds, and their actions in the fund are often influenced by powers and motivations not known outside their company. Mutual Fund prices are not influenced by fluctuations seen in the market throughout the day so any buy/sell orders are done on the opening price of the day.
Sector specified ETFs are solely effected by the stocks contained in its holdings. A managers outside motivations won’t effect trading. Unusual happenings such as bankruptcies, mergers and de-listings are the only surprises. EFTs can be traded at any point during market-open times of the day. See some breaking-news that makes you want in/out? With ETFs you are good to go.
Knowledge is Power.
If you are a truly interested investor in trading and are following markets and keeping up with economic and political trends, why would you give up the ability to use that information to your benefit to a third-party mutual fund manager.
In an effort to protect their own interests, fund managers will only give out to their share holders the minimum legal requirement. Between reporting times, they can change the position of the fund and even its’ primary focus, and you won’t know about it. Also “window dressing”, creating a smoke screen showing the fund holding this quarter’s winning stocks, can give misguided information resulting in sell low and buy high actions that won’t make you any money.
ETFs are naturally transparent because their holdings are instituted and then they commit to keep them. You know what you own and can see what happens with each decision to buy/sell the fund. A quarterly statement needs no “window dressing” to make it look good.
Buying and selling in Mutual Funds will happen without consideration for personal tax impact on the shareholders. The Funds act of selling for redemptions and buying to utilize newly invested monies can result in short term gains and an increased tax burden for you. THe year-end capital gains dispersment can give you Phantom Gains that require you to pay increased taxes. The likelihood of this happening with ETFs is greatly reduced.
You control when you make ETF trades. Say you want to keep your earnings in a lower tax bracket and can do that by delaying a sell. You can take that risk. You aren’t limited by the amount of cash you can hold so you decide when to put new monies or reusable money to use. You also have access to up to date portfolio information any time you need it…. including taxable earnings, which can make tax planning a whole lot easier.
Lower Fees and More Options.
No options exist for traditional Mutual Funds. The opportunity to control assets without owning them only exists for individual securities and the ETFs that own baskets of stocks. And, just because that Mutual Fund bills itself as “no-load” don’t think you’re not paying the management’s salary and bonuses. 12b-1 fees are just the ones you see. Transaction and management expenses are deducted from earnings before they ever get to your account, further reducing your gains.
With no need for a manager to constantly tweak an EFTs holding, and no question about what went out the back-end, the EFT has very low fees. As a hands-on trader, keeping an eye on the big picture, ETFs win out over Mutual Funds every time.
People who continue to believe they can “set it and forget it”, leaving the decision of where to put their money to professionals, will be buying that service with their cold hard cash. They will also be working a longer amount of time than the person who takes control of their own accounts using EFTs and a tried and tested trading method.