Straight To The Point:
ETFs and mutual funds appear to be similar investing vehicles. Does it matter in which you choose to invest? Chris Patterson explains.
First Things First:
- 2:12 – In The News: Target Raises Minimum Wage
- 6:05 – Mailbag: Bill gives our topic this week as he asks Brian to explain the difference in mutual funds and ETFs.
The Real Deal:
ETFs And Mutual Funds Carry Different Tax Implications.
- 7:15 – Mutual funds tend to be more actively traded. Therefore, they carry more capital gains distributions. That’s a fancy way of saying your mutual funds make you money, and you get a return on your investment. However, you have to pay taxes on those returns.
- 8:26 – Exchange Traded Funds (ETFs) are much more tax efficient. They follow different indices, meaning they mirror the activity of the market.
ETFs And Mutual Funds Come With Different Fees.
- 9:08 – Mutual funds tend to have more expensive fees than do ETFs. These costs are driven by active (mutual funds) versus passive (ETFs) styles of management. Mutual funds are actively managed, meaning someone is actively watching out for your investments. ETFs are passively managed. As we previously mentioned, they simply follow the market’s activity.
What About Turnover?
- 10:20 – Turnover is the amount of changing investments inside a portfolio. Let’s say you have a hundred stocks in a mutual fund and you decide to buy and replace fifty of them in a given year. Your turnover percentage would be fifty percent. High turnover rates are generally considered to be a bad thing in the investment world. Mutual funds tend to have a higher turnover percentage than ETFs.
- 11:42 – Why is this bad? There are costs associated with every trade you make in a fund. The more trades you make, the more costs you incur. Studies have shown that the average cost associated with turnover in mutual funds is higher than in ETFs.
Beyond The Zone:
***Click the box to get it!