Related: ETF vs. Mutual Fund: The Same, But (Very) Different
From an investment standpoint, it’s not the vehicle you choose (ETF or mutual fund) that dictates the safety of the product, it’s the asset manager who constructs the portfolio and strategy—and the manager’s prudence, focus, and decision-making—that makes a product safe.
Wrapping up
Even though I’m a big fan of ETFs and they’re the main focus of my job, the case for positioning ETFs as safer than mutual funds doesn’t hold water. As my colleague Joel Dickson pointed out, both mutual funds and ETFs are just wrappers for a particular investment. Choose the one whose strategy, features, and cost structure matches your time horizon.
And mutual funds and ETFs, please play nicely with each other. We love you both equally!
Richard F. Powers is the head of ETF Product Management in Vanguard Portfolio Review Department. He joined Vanguard as a client relationship associate in 1999 and joined Portfolio Review in 2003.
Notes:
All investing is subject to risk, including possible loss of principal.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.