ETFs and mutual funds are similar but not exactly the same. However, I believe that Exchange Traded Funds (ETFs) are generally a better investment option. Here’s why:
Banks Charge More And Not Everyday Investor-Friendly
First off, mutual funds are typically offered by banks, and they are known for charging higher fees for any services.[^1] Banks tend to have “not so obvious” fee such as account threshold fee that charges you in percentage. And you need to go through every page possible on their old-fashioned website to see that.
ETFs do not do that, just a yearly expense ratio, you are good to go. If you want more just head to the ETF page, and download a PDF, it includes everything you need, straightforward.
With ETFs, You Have More Flexibility
Now, although flexibility doesn’t necessarily equals better, in the world of investment it is. For ETFs you can buy and sell any amount at any time you like, starting with only 100 USD or even lower. Mutual Funds, however, usually require at least a few thousand as a down deposit, and you have to set up a regular investment term with them.
Dependence on Fund Managers
Actively managed mutual funds heavily rely on the fund managers to make investment decisions. However, [^2] historical data shows that these funds often underperform the market and index funds in the long run. Warren Buffet suggests buying the S&P500 index regularly especially if you don’t want to pick the companies yourself.
What About Passive Funds VS. Index ETFs then?
This is the right question to ask. I truly believe through intensive digging you can find a fund that works for you, or maybe even cheaper than VTI and VOO, this kind of largest index ETFs. However, why spend the effort though? As a non-professional myself, I don’t have billion to invest. If it just means a 0.003% difference per year, why bother finding? Not to mention I have to use that specific bank, through that specific agent, through certain manners just to do that. Why don’t I just open my investing app and buy VTI? Simple as that!
Summary
In conclusion, while mutual funds have their place in the investment world, for everyday investors it is easier to approach investing through ETFs. Because they offer several advantages such as ease of use, [^3] lower fees and more flexibility.
Therefore it is more appealing to most investors, and I suggest it to you too.
[^1]:IBKR has better exchange rate; Wise has lower international transfer fee; (Terms may apply.)
[^3]:CNBC: Some mutual funds are pricier than others. Here’s when they may benefit investors
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