In this week’s Countdown to Retirement, a viewer asks if he should invest in ETFs (exchange traded funds) or mutual funds. Joe explains the difference between these two types of funds and describes which one they recommend.
Important Points:
0:18 “I’ve been looking at ETFs and mutual funds, and I’m not quite sure where to invest. Can you help me decide where the best place is to put my money?”
0:41 “There are two subtle differences…an exchange traded fund is where you’re basically buying the market. So if I want small gap, large gap, mid gap, etc. – an exchange traded fund is where I’m buying the entire index and it’s at a very low cost.”
0:57 “I like ETFs quite a bit because they’re very transparent, they’re very cheap and they’re very tax-efficient – there’s not a lot of trading that goes on.”
1:04 “In an active managed mutual fund, you have a portfolio manager that’s buying and selling stocks in a particular category of stocks, such as large companies…the majority of them fail to beat the overall benchmark so I’d much rather stick with the benchmark which would be an exchange traded fund which is lower cost, more tax-efficient and 100% transparent.”
1:38 “Part of the reason why they (ETFs) are cheaper is their internal costs are cheaper because they don’t have a fund manager and a bunch of analysts trying to pick stocks.”
1:47 “Those that do active mutual funds over the long term tend to earn the market return minus their cost so you’re better off with an ETF.”
