ETFs

ETF’s vs. Mutual Funds Cont…

In today’s article we will continue to discuss the differences between exchange traded funds and mutual funds as well as the disadvantages of each. Mutual funds are traditionally actively managed by a fund management team who determine what they will buy. Index mutual funds works just like traditional mutual funds however index funds invest money into stocks that track a chosen benchmark as a whole. They typically also have lower expenses than traditional mutual funds. ETF’s, on the other hand, are simply investment portfolios that consist of many securities that trade like stocks. These securities track the performance of an index. The most important difference between these two funds is that ETFs can be traded all day like stocks, but mutual funds trade only once a day.

Disadvantages of Exchange Traded Funds Include:

  • Trading Costs – Since ETF’s are traded like stock, transactions fees are similar to as if you are trading stock. The commission can vary greatly and can dip into your returns.
  • Dividends – Dividends are paid out by the ETF and are not reinvested as they are with mutual funds. Therefore the investor gets paid the dividend in cash.
  • Brokerage – You must have a brokerage account for ETF trading which is accompanied by account minimum and recurring fees.
  • Slippage – When trading ETFs what you buy and sell a share for will be different just like when trading stocks on the open market.

Disadvantage of Mutual Funds Include:

  • High Minimums – These funds require a high minimum investment just to begin and can range upwards to $5,000 or more. Unlike the ETF market , investors must have a good amount of capital just to get started.
  • Fees – There are hidden fees that investors won’t know about until it’s too late. Fees such as front and back-end sale charges and some advertising fees can occur. Not all mutual funds have these fees so you must be careful to research and find out.
  • Actively Managed Fees – Unlike ETF’s there is a fee since mutual funds are actively managed by a person or group of people. These fees can be high and can eat into your returns.

Please read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis . It is the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or index exchange traded funds .