Investors are choosing exchange traded funds (ETFs) over index funds, and the proof is in the money going into them. Jonathon Clements for The Wall Street Journal points out a few of his own ideas about why this is the case. He believes there is a place in portfolios for both. For funds you are regularly adding to and drawing from, use index mutual funds, and for longer term investments, look to ETFs. Here are some other points:
- Counting Costs. ETFs are a favorite among traders, those aiming for deliberate bets. With every trade you pay a brokerage commission and may loose a little to the bid-ask spread. It’s might not be economical for someone putting away $100-$300 every every now and gain.
- Splitting Up. Perhaps your smaller investments in a mutual fund are adding up and are now worth $20,000 or so. Move that money into ETFs to take advantage of their low expenses and keep your smaller increments of savings going into a mutual fund.
- Dodging Potholes. Some mutual funds charge a fee if there is less than the minimum in an account. Tax efficiency is great with ETFs because they rarely pay out capital gains taxes. Check out expense ratios on the mutual funds and ETFs-they vary.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.