Exchange Traded Funds



Unless your portfolio is greater than $1.5 million, you should not own individual stocks because you cannot achieve adequate diversification to protect your portfolio from erratic fluctuations. One EFT typically is comprised of 250 to 500 securities.


Mutual funds normally charge 1.0% to 1.5% annually as a management fee. ETF's typically will charge between 0.03% to 0.19%. On a $100,000 portfolio the Mutual fund charge could be $1,000 while the ETF charge could be $30. Over the years that is a huge difference.


Mutual funds only trade at the once a day, at the end of the day. So, if you decide to buy or sell you have no idea if the market will be up or down at the end of the day. ETF's trade just like any other security, minute to minute/second to second from the time the markets open until Closing.


Since ETF's trade just like a security, you will always know at the time of sale the amount of your gain or loss. With a mutual fund you have two issues to contend with. One, when you sell a mutual you will know the day after sale the amount of your gain or loss. Two, at the end of the year you could receive a Form 1099 from the mutual fund as to what their Capital Gains have been from their internal trading throughout the year (Capital Gains Distributions). You will be required pay taxes on their gains; however, they will not send you any funds along with this Capital Gain Distribution. This is a "Phantom Gain"; no cash distribution, just paper gain subject to tax.