When you’re just getting started with investing, it’s wise to explore your options. Once upon a time, mutual funds were the way to go. These days, though, exchange traded funds (ETFs) are the better bet for most investors – at any stage.
Mutual funds were once the go-to choice for new investors, but ETFs simply offer more advantages when you look at the bigger picture. [Why ETFs Trounce Mutual Funds.]
Many mutual fund companies don’t have loads (sales charges), which means you can buy in without having to pay fee upfront. With ETFs, you have to pay a commission to buy shares, which could add up if you’re buying small amounts here and there, says Matt Krantz for USA Today.
Online brokers are now slashing commissions, eroding the advantage of mutual funds have over ETFs. There are even some brokers that offer free commissions once you have $25,000 in your portfolio. [Fidelity Offers Free Trading.]
So, what’s the bottom line here?
Weigh the benefits of mutual funds and ETFs and compare them to your situation and needs. In most cases, you may find ETFs to be the better bet. Don’t assume, however, that every ETF is automatically superior to every mutual fund. [9 Predictions for 2010.]
For more stories about mutual funds, visit our mutual funds category.
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.