With exchange traded funds gaining wider acceptance, many investors are considering switching out their open-end mutual fund positions for the cheaper ETF options.
Michael Kitces, a CFP professional and director of planning research at the Pinnacle Advisory Group, argues that shifting assets away from mutual funds and into ETFs makes sense for some retirees, especially for those more well off, reports Chris Kissell for Bankrate.
ETFs trade like any stock on a brokerage account and come with trading fees. Consequently, wealthy investors, who plan on withdrawing a few times a year, are better off switching to ETFs since the commission fee would only make up a fraction of a large withdrawal.
“Compared to paying an ongoing mutual fund fee that is higher, it’s a huge savings,” Kitces said in the article, adding that as a general rule, “the larger the dollar amounts involved, the more it pays to get a low-expense ETF.”
However, Kitces points out that smaller investors need to factor in cost considerations before making a move.
“In many cases, the cost you pay in transaction fees dramatically trumps the cost you pay for everything else,” Kitces said.