Mutual Fund vs. ETF

Landonfisher

Landonfisher

Hello all!

Im in the process of putting together my portfolio and am having some difficulty deciding what would be more beneficial for a novice investor that is going to make small monthly contributions between 500-600 dollars, mutual funds, etf's, or a combination of the two.

Since eft's trade like stocks and have a commission every time you want to purchase more shares, would it be more efficient to just own mutual funds since you can add a min. of 100 a month without incurring extra costs?

Thanks for any replies in advance.
 
Landonfisher said:
Hello all!

Im in the process of putting together my portfolio and am having some difficulty deciding what would be more beneficial for a novice investor that is going to make small monthly contributions between 500-600 dollars, mutual funds, etf's, or a combination of the two.

Since eft's trade like stocks and have a commission every time you want to purchase more shares, would it be more efficient to just own mutual funds since you can add a min. of 100 a month without incurring extra costs?

Thanks for any replies in advance.
More...

The only real advantages of ETFs is they trade like stocks and have lower management fees.... but they have transaction costs*. Mutual funds have end-of-day fills only, no transaction fees in no load funds, but higher management fees. There are leveraged and inverse ones of both.

Too many variable to say for sure which would be better.

*There are some ETFs you can buy and sell without paying commissions. Some have a minimum holding period to avoid commission/charges, but others do not.
 
$ cost averaging is easier with a Mutual fund, but at the end of each year, the mutual fund will send you a tax bill where the ETF does not.

"Mutual funds are required to distribute their income to shareholders each year in the form of interest, dividends and capital gains. Most do so at year-end, by Dec. 31. " https://www.cnbc.com/2014/11/26/beware-of-the-year-end-mutual-fund-tax-blowup.html

Based on only the information you have giving, for long term savings, for me, I would choose the mutual fund. I did that to save money for my daughters college. Every year I cursed the tax bill but I never would have bought an ETF or a stock in those small increments.
 
I would go for for ETFs. commissions are so low nowadays as to be negligible. if you want to cut your commission costs in half invest double the amount to be invested and invest every two months. typical cost would be $4.95 or less, lower management fees and no taxes due.
 
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There are now a couple of hundred ETFs that trade at the various brokers' commission free as long as you hold them 60 days or more. You should be able to find something that fits what you are trying to achieve. There are lots of clones of spys, qqqq and the iwm. As was mentioned management fees are generally lower on the ETFs.
At some future point if you want to actively trade - they price real time.
 
If you’re averaging in and building a portfolio over the long term, super low cost no-load mutual funds at houses like Vanguard, Fidelity, etc are hard to beat.

There are several brokers that allow you to purchase no fee ETF’s as well, but they’re often paired up with low volume ETF providers. The spread isn’t usually favorable on many of them.
 
If you know how to properly hedge a mutual fund with regards to their holdings, you can make a killing over what a prop accounts ETF’s can offer. It’s all about what you can find.

The spread between 1% and 8-15% margin on millions of dollars is enormous.
I don’t trade it anymore but you can make a good living off of it.
 
DeltaRisk said:
If you know how to properly hedge a mutual fund with regards to their holdings, you can make a killing over what a prop accounts ETF’s can offer. It’s all about what you can find.

The spread between 1% and 8-15% margin on millions of dollars is enormous.
I don’t trade it anymore but you can make a good living off of it.
More...
how does the spread arise? TIA.
 
It’s a financing(arb) spread, nothing more.

Read Sec 15c3-1.

I’m not going to hand it to you.
The caveat is, you will need a professional account to do this. Some deposit props can offer you this.
 
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