ETFs vs. Mutual Funds: Which is Better?

In one corner with over $9 trillion in assets is the experienced, long-standing heavyweight champion of the investment world: Mutual funds. In the other, with over $1 trillion in assets, is the young and nimble, undefeated rival: Exchange-traded funds, or ETFs. Both competitors are vying for your hard-earned life savings. Which is better for you? You be the judge over the next five rounds:

Round One: Fees

Mutual Funds: According to Investopedia the average stock fund charges an advertised fee of 1.3-1.5 percent, of course specialty or international funds may be costlier. Many brokers, bankers, and advisers charge an additional management fee of around 1-1.5 percent, so you can very easily be paying 2.5 percent or more for a mutual fund portfolio, not counting the tax cost of ownership.

ETFs: In comparison, many exchange-traded funds are less costly than mutual funds, are free from sales commission loads, and, according to the Wall Street Journal, boast an average expense ratio of 0.44 percent, which all things being equal, should keep more money in your pocket. Even with an adviser's management fee of 1 percent, your investment cost is still lower than owning an average mutual fund outright.

Round Two: Transparency

Mutual Funds: Many mutual fund aficionados suffer from a hidden danger in their portfolio: overlap. Because of the utter lack of transparency in the mutual fund industry, it's not uncommon to be holding several apparently different mutual funds that actually hold some of the same stocks, causing you to be overexposed to single companies.

ETFs: Because of their simplicity, ETFs are far more transparent because, in essence, you own different market indexes. If you own a commodity-linked ETF versus large-cap ETF, you don't have overlap (overexposure) because of the specificity of the ETF vehicle.

Round Three: Alternative & Specific Markets

Mutual Funds: In recent years the offerings of mutual funds have expanded into different and alternative markets such as China, gold, long/short strategies, and others so they've become more robust, and consequently more expensive.

ETFs: It's hard to match the access to narrow and specific markets that ETFs offer. Say you want to invest in consumer-product companies in Brazil, or bet that market volatility will increase; there's ETFs for that. One growing area of danger is leveraged ETFs, where you can gain multiplied leverage (double or triple the movement of an index). This can be dangerous for investors that don't have tight risk management because your trade can quickly go against you causing a K.O. punch to your returns

Round Four: Access

Mutual Funds: Most mutual funds have a threshold minimum investment, meaning you must start with $10,000 or so to invest. While this isn't a big hurdle to many investors, it does reduce how far you can spread your risk among many different options.

ETFs: ETFs do not require an investment minimum, so they are accessible to all as long as you have enough to buy at least one share. More importantly this allows smart investors (and money managers) to nimbly spread risk among many sectors, countries, and asset classes, greatly improving the benefits of diversification.

Round Five: Tax Efficiency

Mutual Funds: If there's one thing you give up with a mutual fund portfolio its control, especially control over when you take gains or losses. Mutual funds are one of the most tax-inefficient investments known to man. For example, in a year where a fund loses money investors may still receive 1099s saying they owed tax on gains to add insult to injury. Why? The fund manager may have decided to sell some of the winners (in a losing year) to stop hemorrhaging money from the fund. This can also allow them to advertise a better return for the year. They aren't doing what was in the best interest of the investor; they're doing what's in the best interest of their marketing department.

ETFs: Because ETFs generally follow an index they are far more tax-efficient. You (or your money manager) are in the driver's seat on when it's best for you to take gains or harvest losses. Last, but not least, ETFs trade like stocks (unlike funds that calculate their value at the end of day), so you know exactly the price at which your sell order was executed, giving you certainty on gains or losses.

Robert Russell is the author of Retirement Held Hostage, CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to The Wall Street Journal, SmartMoney, & FOX Business.



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • ECB needs help from other policy areas as 'lower bound' looms
    ECB needs help from other policy areas as 'lower bound' looms Reuters - 6 minutes ago

    FRANKFURT (Reuters) - The European Central Bank's monetary stimulus needs to be complemented by action in other policy areas as the ECB is already operating near a "lower bound" where interest ... … More »

  • Malaysia's SapuraKencana posts quarterly profit on forex gain Reuters - 7 minutes ago

    Net profit rose nearly 8 percent to 112.3 million ringgit ($27.16 million) in its second quarter ended July 31 from 104.1 million ringgit a year earlier, the company said in a filing with the stock exchange. Revenue, however, fell to 1.68 billion … More »

  • Brewer AB InBev shareholders approve takeover of rival SABMiller
    Brewer AB InBev shareholders approve takeover of rival SABMiller AFP News - 14 minutes ago

    Shareholders of brewing giant Anheuser-Busch InBev approved the blockbuster takeover of rival SABMiller, the brewer said on Wednesday, clearing a major hurdle towards one of the biggest mergers ever attempted. … More »

  • Asian markets down, energy firms hit by oil deal woes
    Asian markets down, energy firms hit by oil deal woes AFP News - 18 minutes ago

    Tokyo stocks led a broad retreat in Asian markets Wednesday as the yen recovered, while regional energy firms struggled with crude prices on concern about the chances of success at an upcoming producers' meeting. Standard Chartered Bank fell two … More »

  • AB InBev to retain its name after SABMiller takeover Reuters - 36 minutes ago

    BRUSSELS (Reuters) - Anheuser-Busch InBev said on Wednesday that it would retain its existing name after a planned $100-billion-plus (76.89 billion pounds) takeover of rival SABMiller. SABMiller shareholders ... … More »

  • UK's Phoenix to buy Deutsche Bank's Abbey Life for $1.22 billion Reuters - 1 hour 4 minutes ago

    (Reuters) - Phoenix Group Holdings, Britain's largest owner of life assurance funds closed to new customers, said it would buy Deutsche Bank AG's British insurance business Abbey Life Assurance Co for ... … More »

  • Two new tsars to be created as Airbus reorganisation takes shape
    Two new tsars to be created as Airbus reorganisation takes shape Reuters - 1 hour 8 minutes ago

    Airbus Group Chief Executive Tom Enders plans to expand a shake-up of Europe’s largest aerospace group by promoting two executives to oversee engineering and programmes as he forces through more "integration" to prepare for future competition. … More »

  • JTC launches Tuas site for sale
    JTC launches Tuas site for sale The Edge Property - 1 hour 11 minutes ago

    JTC has launced a confirmed-list site at Tuas South Link 2 (Plot 11) for sale by public tender. It is the third of the seven confirmed-list sites for the 2H2016 Industrial Government Land Sales Programme.The 53,997 sq ft site is zoned for business 2 … More »

  • Oil stages tepid rebound as hopes ease for output deal AFP - 1 hour 11 minutes ago

    Oil prices posted marginal gains in Asia Wednesday as an industry report showing a decline in US stockpiles was offset by worries about the chances of this week's key producers meeting ending with a deal ... … More »

  • Gold hits one-week low as dollar firms
    Gold hits one-week low as dollar firms Reuters - 1 hour 11 minutes ago

    Gold prices slipped on Wednesday to touch a one-week low, after suffering its biggest single-day loss in nearly a month in the previous session, on a firmer dollar. The safe haven asset slid nearly 1 percent on Tuesday, its biggest single session … More »

  • Motoring group AA posts first half revenue rise, sees no Brexit impact Reuters - 1 hour 15 minutes ago

    The results strip out any contribution from AA Ireland, which AA agreed to sell to a Carlyle Group fund and financial services buyout team in June for 156.6 million euros. The firm said it had not seen any impact of Brexit-related issues on its … More »

  • World Bank releases $300 mn for Syrian refugees in Jordan
    World Bank releases $300 mn for Syrian refugees in Jordan AFP News - 1 hour 15 minutes ago

    The World Bank announced it will release $300 million in loans to help facilitate the labor market for Syrian refugees in Jordan. The funds will be used to attract investors and create reforms that will help grant access to the Syrian labor force, … More »

  • European stocks climb at open AFP - 1 hour 16 minutes ago

    Europe's main stock markets rose at the open of trading on Wednesday, with London's benchmark FTSE 100 index climbing 0.3 percent to 6,826.28 points. In the eurozone, Frankfurt's DAX 30 grew 0.6 percent ... … More »

  • Zuckerberg initiative poaches AstraZeneca board member Reuters - 1 hour 16 minutes ago

    The $3 billion (2.3 billion pounds) health initiative set up by Facebook co-founder Mark Zuckerberg and his wife Priscilla Chan has hired one of AstraZeneca's non-executive directors to head up its science drive. The British drugmaker said on … More »

  • Yellen likely to face questions about Wells Fargo
    Yellen likely to face questions about Wells Fargo Associated Press - 1 hour 17 minutes ago

    Federal Reserve Chair Janet Yellen, who has been in the hot seat over the central bank's interest-rate policy, now has another headache: Wells Fargo. Yellen is likely to face sharp questions from a House ... … More »

  • Rolls-Royce appoints new strategy and digital executives Reuters - 1 hour 19 minutes ago

    British engineer Rolls-Royce appointed veteran M&A banker Ben Story to oversee its strategy and marketing, and Neil Crockett to develop its digital affairs, completing its new-look senior line up on Wednesday. Rolls-Royce, in the middle of a major … More »

  • BELOW $1 MILLION: Freehold one-bedder near Dhoby Ghaut
    BELOW $1 MILLION: Freehold one-bedder near Dhoby Ghaut The Edge Property - 1 hour 20 minutes ago

    A 474 sq ft one-bedroom unit at Parc Sophia has been listed on TheEdgeProperty.com at $898,000 or $1,895 psf.Parc Sophia is a freehold apartment on Adis Road. Completed in 2011, the 152-unit development is within 300m from Dhoby Ghaut MRT … More »

  • Trump has turned over tax returns _ for lawsuits and loans
    Trump has turned over tax returns _ for lawsuits and loans Associated Press - 1 hour 28 minutes ago

    While Donald Trump won't publicly release his income tax returns, the New York businessman has turned them over when it suited his needs — if he stood to make a profit, needed a loan or when a judge forced ... … More »

  • US fines RBS bank $1.1 bn over pre-crisis mortgages
    US fines RBS bank $1.1 bn over pre-crisis mortgages AFP News - 1 hour 32 minutes ago

    Royal Bank of Scotland on Wednesday said it had agreed a fine of $1.1 billion (982 million euros) with US authorities over the alleged mis-selling of mortgage securities ahead of the 2008 financial crisis. It comes a week after US authorities said … More »

  • Asian stock markets turn lower after Wall Street gains
    Asian stock markets turn lower after Wall Street gains Associated Press - 1 hour 38 minutes ago

    Major Asian stock markets were lower Wednesday after investors were reassured by trade-friendly Hillary Clinton's performance in a U.S. presidential debate with rival Donald Trump. KEEPING SCORE: Tokyo's ... … More »

  • Travel firm TUI Group nudges up full-year profit outlook
    Travel firm TUI Group nudges up full-year profit outlook Reuters - 1 hour 42 minutes ago

    Holiday company TUI Group lifted its 2015/16 core profit guidance on Wednesday, helped by strong demand from British tourists and a lower exposure than its biggest rival to Turkey which has been hit by security fears. TUI said on Wednesday that it … More »

  • Shareholders vote on AB Inbev-SABMiller beer megamerger
    Shareholders vote on AB Inbev-SABMiller beer megamerger AFP News - 1 hour 43 minutes ago

    Shareholders of brewing giants Anheuser-Busch InBev and rival SABMiller will vote on Wednesday on a blockbuster merger that would create the biggest beer company in the world. Belgium-based AB InBev, the brewer of Budweiser and Stella Artois, is … More »

  • Oil climbs after industry data shows U.S. inventory draw
    Oil climbs after industry data shows U.S. inventory draw Reuters - 1 hour 44 minutes ago

    Oil prices rose in mixed trading on Wednesday, after sharp losses in the previous session, as industry data showed a surprise draw in U.S. crude stocks, although worries over a lack of agreement among producers to curb output kept a lid on gains. … More »

  • 10 things in tech you need to know today
    10 things in tech you need to know today Business Insider - 1 hour 46 minutes ago

    Reuters/Beck Diefenbach Good morning! Here’s the tech news … Continued The post 10 things in tech you need to know today appeared first on Business Insider. … More »

  • Canada approves $36 bn LNG project, eyes Asia
    Canada approves $36 bn LNG project, eyes Asia AFP News - 1 hour 48 minutes ago

    Canada approved a massive Can$36 billion ($27 billion USD) project by Malaysia's Petronas to build a liquefied natural gas pipeline along its Pacific Northwest coast, targeting Asian markets. The project is the first deal by Canada's year-old … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.15+0.01+6.38%
    N21.SI
    0.97+0.01+0.52%
    Y92.SI
    0.144+0.002+1.41%
    5DM.SI
    3.990.000.00%
    Z74.SI
    0.67+0.05+7.20%
    BMT.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.24+0.05+26.32%
    AWI.SI
    0.15+0.02+15.38%
    RF7.SI
    0.215+0.026+13.76%
    I07.SI
    0.13+0.01+8.33%
    5UE.SI
    0.161+0.011+7.33%
    5PL.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.112-0.028-20.00%
    BEH.SI
    0.22-0.03-13.73%
    AZT.SI
    0.66-0.05-7.04%
    BTE.SI
    0.40-0.03-6.98%
    B58.SI
    0.325-0.005-1.52%
    BEW.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3609+0.0014+0.10%
    USDSGD=X
    1.5246-0.0003-0.02%
    EURSGD=X
    1.7690-0.0012-0.07%
    GBPSGD=X
    73.9720+0.116+0.16%
    SGDJPY=X
    5.6953-0.007-0.12%
    SGDHKD=X
    3.0408+0.0018+0.06%
    SGDMYR=X
    9,522.0586-6.3945-0.07%
    SGDIDR=X
    4.9014-0.0041-0.08%
    SGDCNY=X
    1.0446+0.0024+0.23%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,326.70-3.70-0.28%
    GCZ16.CMX
    19.11-0.05-0.26%
    SIZ16.CMX
    92.98-1.47-1.55%
    ^XAU
    2.18+0.01+0.55%
    HGZ16.CMX
    43.85+0.41+0.94%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.11-0.02
    ^FVX
    1.56-0.03
    ^TNX
    2.28-0.05
    ^TYX