ETF vs Mutual funds

Haven’t seen a discussion comparing the 2 in almost a year and am curious if people feel the same way: most here preferred ETFs over mutual funds. The one thing that’s been keeping me away from ETF’s are the trading fees. Even though ETF’s have lower expense ratios than index funds, the trading fees could end up costing more than the higher expense ratios.

ETF’s are better. I use ETF’s in my Roth since I do large buy ins. I have two ETF’s in my taxable account. I do use a ACB mutual fund for small bimonthly buy ins. I’m waiting for my 1099 this year to see if I owe capital gains taxes on that mutual fund when I have an unrealized loss in my account.

What about the dividend drag in an ETF? Dividends paid out by the ETF are not reinvested which is common with mutual funds.

That is one drawback. In my taxable I just throw them into that mutual fund. In my Roth, I include them in the yearly buy ins. So they do get invested, just not immediately.

If you’re going to hold for a long time and reinvest dividends, it may make sense to stick with a mutual fund. Also, if you want an active manager and aren’t eligible for hedge funds, mutual funds are your vehicle, along with closed-end funds. Even if you are hedge fund eligible, mutual funds have lower fees.

ETF’s all the way, more tax efficient/lower expenses, and they perform better then mutual funds. Active management has had a very difficult time beating the market and I for one do not have the time or skills to pick out the mutual funds that will beat the market going forward. I do hold a couple if I cannot find an etf I like and my stupid 401k doesn’t have enough etfs.

s23dino Wrote: ------------------------------------------------------- > ETF’s all the way, more tax efficient/lower > expenses Doesn’t the tax argument go out the window if you are using a tax deferred retirement account?

Yes I believe so, still I think the other advantages weigh out in ETF’s favor but I am in agreement that you can invest in both but majority in ETF’s.

Yes, I have them in my Roth. I mean, VTI has a management fee of .07%. Find me a index mutual fund with expenses that low.

ETFs are great vehicles, I was just bringing up the few cases where you might want to go with a MF.

For the average Joe mutual funds are the way to go. Most American 401(k)s are allocated into a selection of actively managed MFs which definitely suit the middle of the road worker who couldn’t define ETF. MF expense fees will of course be much higher but sometimes it pays to have an all star fund manager, just not an 08’ Bill Miller. ETFs provide investors with a large arsenal of industry specific funds. You can invest in almost anything now through ETFs. ETFs will continue to remain extremely popular over the next several years as more and more people will start to manage their own money.

don’t quite agree that actively managed mutual fund is good for average joe. there’s plethora of evidence that suggests indexing as a better strategy than active funds. Most companies 401k plans do offer some sort of indexed mutual fund. My advice to Joe-the-plumber would be to take these over any actively managed funds

I have my ETF dividends reinvested automatically through a DRIP- how is that different from MF?? (I’m really asking bc I don’t know)

akanska Wrote: ------------------------------------------------------- > I have my ETF dividends reinvested automatically > through a DRIP- how is that different from MF?? > (I’m really asking bc I don’t know) The reinvestment structure is the same. Any dividends or capital gains distributions passed to the shareholder can be automatically reinvested into your MF. MFs allow you to purchase partial shares because they’re open ended and can be created on the spot. ETFs, depending on your broker, may or may not be available in partial amounts.

I see- per my BD any listed secutities that meet volume minimums (I don’t remember the # but is was tiny) are eligible for DRIP programs. I hold some pretty thinly traded CEF’s and even they allowed for reinvestment that bought in partial shares. I don’t know how if this is really a con in the ETF-vs-MF argument then…

EFT allows you to express your opinion on market, sector, currency much better, also it allows you to trade much easier than MF. MF is dying…except the MF pays less licensing fee to S&P, I can’t think of any advantage of MF over ETF.

ws Wrote: ------------------------------------------------------- > MF is dying…except the MF pays less licensing > fee to S&P, I can’t think of any advantage of MF > over ETF. MFs will definitely see consolidation within the industry over the next several years. A 35% down year provides many people with the idea that they can beat their fund managers. Unfortunately, I can only invest in MFs through my 401k, no company stock or ETFs.

I don’t think MFs will completely die, but they may consolidate. People talk about actively managed ETFs, but I don’t see how these can be constructed in a way that keeps price/NAV tracking error low. So if average joe wants active management, MFs are the way to go (or CEFs). Now, one can argue that active management sucks so just buy an index ETF instead of an index MF for lower fees and more control over taxes, but I think joe consumer isn’t going to be thinking too much about survivor bias when deciding whether he wants a fund on autopilot vs a fund with a driver.

Are there any good books discussing ETFs in depth?

One scenario where a MF may be better suited is when one wishes to build a position over a period of time. Adding to a MF through a weekly automatic withdrawal of $50 is something one probably wouldn’t want to do with an ETF due to commission charges and the inability to buy partial shares. At some dollar amount, a weekly purchase of an ETF instead of MF would probably make more sense although I’m not sure what point that would be.