Low costs double returns as ETFs beat mutual funds. The cost difference between ETFs and mutual funds allows investors to choose low cost over low returns. And any investor making that choice can immediately improve their net returns! As a result, some investors can see double the net returns compared to those of a high-cost mutual fund! That happens because ETF investors benefit from the better cost structure of a superior fund design. As well, investors making the switch, can annually compound those better returns for a huge boost to their future wealth building.
What you learn from low costs double returns as ETFs beat mutual funds
This lesson covers cost control as a basic investment truth! Investors can choose low costs or low returns! By keeping costs low, investors improve returns. WE cover the cost advantage of switching a mutual fund investment to a lower-cost ETF. That resulting cost difference can significantly improve investment performance. Links at the end guide you to related content if you want to learn more. The lesson covers the following points,
Frequently Asked Questions about ETFs and mutual funds
Investors want to know about ETFs and mutual funds and how low cost can double returns. The questions and answers do have overlap which helps investors understand how they fit within the overall topic. Following are the most frequently asked questions with answers about ETFs and mutual funds.
Why do investors buy mutual funds?
Salespeople, including financial advisors, promote mutual funds to collect high commissions and recurring annual fees. At the same time, lower-cost ETFs offer superior returns to investors.ETFs are designed for stock exchange listing and use efficient technology to lower costs and increase investor returns. That allows mutual fund investors to immediately improve returns by switching to ETFs.
Unfortunately, advisors prioritizing their financial gain over their clients' best interests continue pushing mutual funds. Anyone suffering such abuse can improve their financial future by switching to ETFs.
What is better, an ETF or a similar mutual fund?
ETF investors benefit from the cost efficiencies of a modern fund structure. That better design produces lower costs giving investors better returns, tax advantages, lower fees, and lower expense ratios.
However, the higher and recurring commissions and fees of mutual funds motivate many financial advisors to recommend them instead of lower-cost ETFs. The cost difference comes from investors' pockets.
Switching to a comparable ETF avoids all those cost differences, immediately producing better returns.
What funds go up when the market goes down?
From passive gold investing to leveraging inverse ETFs, many hedging options, such as bond and hedge funds, gain value when stocks decline, including commodity funds and numerous ETFs. Nonetheless, acquiring the necessary knowledge is crucial to successful hedging.
A well-executed hedge can yield significant benefits, but an inappropriate or poorly implemented one can lead to financial disaster. Hedging is a multifaceted and intricate art that only a few master. Success relies more on intuition than mere facts or skills. So while many can talk, only a few consistently deliver good outcomes.
The most common hedges are U.S. Treasuries or short-selling declining stocks, sectors, markets, or commodities.
What is better, an index fund or an ETF?
While mutual funds and ETFs can both track indices, ETFs are the best choice because of their cost advantages. Since ETFs are designed to work as stock market listings, they are easier to trade and may offer tax advantages, flexibility, as well as more convenience than mutual funds. As well, mutual funds continue using expensive sales and management structures. That produces lower investor returns, as the difference goes to the sellers! Those high reoccurring fees ensure advisors push mutual funds and do not tell investors about the more cost-effective ETFs.
What is the best ETF?
The best ETF for an investor depends on their investment goals, risk tolerance, financial strategy, market conditions, and investment opportunities that change over time.
ETFs are available for almost any purpose; an S&P 500 Index tracking ETF can be a simple one-investment portfolio, or investors can buy ETFs that align with their preferences for virtually any market, economic sector, business type, commodity, or investment strategy.
Investors can find their best ETF by researching and writing a goal-oriented investment plan and selecting the lowest-cost ETF that aligns with those goals.
Are ETFs better than mutual funds?
Compared to mutual funds, ETFs have cost advantages that produce better returns. That allows mutual fund investors to lower their costs and get a better return on their investment. ETFs are also more liquid and offer better tax efficiency than mutual funds.
From their beginning, the design of ETFs had built-in management and sales cost advantages and a stock market listing structure. Those advantages deliver better investor returns!
In contrast, mutual funds have outdated, costly sales and management structures.
Advisors push mutual funds to earn those high and recurring fees. But that difference gets picked from investors' pockets, producing lower returns.
Investors wanting to build wealth faster can get better returns by switching to ETFs.
Are mutual funds poor investments?
Mutual funds, designed for an era of paper transactions and face-to-face sales, carry high sales, management, and administration costs.
In contrast, ETFs designed for stock exchange listings can take advantage of modern market technology for lower costs, more liquidity, better tax efficiency, and, most significantly, increased investor returns.
While advisors and financial companies aggressively sell mutual funds because they are paid lots of money to do that, those costs reduce investor returns compared to ETFs. Those high costs mean lower net investor returns and is the reason most mutual funds have a long history of underperforming the market.
So investors that switch to ETFs can immediately lower costs and significantly improve their bottom line by as much as 100%!
How can ETF returns beat mutual funds?
Due to their modern digital technology design, ETFs offer better investment returns than mutual funds. As a result, their sales and administration systems have significant cost advantages, leading to better net returns.
In contrast, mutual funds use an outdated design better suited for face-to-face sales and paper records. The expensive differences impact management, transaction, exchange, and records costs. In addition, ETFs are more liquid, easy to trade, and tax-efficient.
By switching to comparable ETFs, investors have the potential to double their returns compared to mutual funds.
Can low-cost ETFs double returns over mutual funds?
Investors have the potential to double their investment returns by switching from low-return mutual funds to low-cost ETFs! The difference in investment returns between the two options is due to the costs.
ETFs have efficient structures designed for stock market listing, which lowers sales and management costs. In contrast, mutual funds were designed for paper record-keeping before the electricity era and have higher and recurring management and sales fees.
By switching to ETFs, investors can avoid or reduce these charges and may collect double the returns!
Why do advisors push mutual funds over less costly funds?
Advisors collect higher fees by selling mutual funds over less costly funds like ETFs. The difference comes out of the investor's pockets. Whether mutual funds perform well or poorly, advisors receive commissions, charge annual fees, and collect management fees for their firms. In that scheme, everybody wins except the investor.
Many advisors prioritize their financial gain over clients by loading accounts with mutual funds to collect the high recurring and exit fees. That is never in the client's best interest.
Investors holding mutual funds that switch to cost-efficient ETFs avoid double-dipping mutual fund fees and collect higher returns.
Do managed funds outperform index funds?
Index funds regularly perform better than managed funds due to their lower fees and consistent returns. While Index Funds track the market or a specific index, managed funds attempt to outperform markets or sector-tracking indexes.
Managed funds justify their significantly higher fees for that commitment to outperform. But even with the outstanding performance of great years included, managed funds have spotty long cycle records. Very few deliver on the outperform promise, and none consistently outperform market index tracking funds.
That mediocre performance record means investors get better returns with low-cost index funds. Opting for low-cost alternatives can double investor returns compared to many mutual funds.
Investor costs matter to consider the ETF vs mutual fund returns
Many small investors began investing with mutual funds. They are often startled to learn the high recurring and trailing costs. Because investors know, high returns need low costs, those many recurring costs harm investment returns.
Unfortunately for investors, most of those costs are obscured or hidden. The overall impact on net investment returns is huge. Most important are the high mutual fund management costs buried in the management expense ratio or MER.
Any financial advisor that puts client capital into a mutual fund puts investor capital to work for them! But, at the investor's expense! But investors can change that.
Virtually every mutual fund has a comparable ETF. And with few exceptions, the ETF carries far lower costs than most mutual funds. But investors make the switch to put the difference in their pocket.
Even better, investors can compound those better returns by continually reinvesting in the markets. Over time, that effort puts significantly more dollars to work building investor wealth.
As a group, ETFs offer huge cost savings over the expenses of comparable mutual funds. That gives mutual fund investors choices. They can switch to ETFs and dramatically improve their returns. For many mutual fund investors, such a switch can make a dramatic difference. Some can more than double their return! It is well worth your time to check it out.
Shocking management expense ratios!
Expenses for both ETFs and mutual funds are expressed as the Management Expense Ratio (MER). MER fees pay management to run the fund. Comparing MERs between ETF and mutual funds shock many investors! The differences can be dramatic. In very many cases, mutual funds have MERs well above what ETFs charge. And that dramatic difference gets picked from investors' pockets!
Some ETF MER costs are below 20 basis points! That is a spectacularly low fee! A basis point is 1/100 of 1% or 0.01%. When compared to a dollar, a basis point is one penny! So under 20 basis points is very low – even cheap!
That happens because technology in our digital age delivers value! Compared to the all too common 2½% MER of too many mutual funds that difference is an outrageous 1,470.59%! That is over 14 times as much! And that means for every $1.00 in MER fees paid to manage an ETF, the comparable amount for a mutual fund is $14.71!
There is no need for investors to put up with that ripoff! By making changes, investors can switch to low-cost ETFs that may double their returns or better! The choice for an investor is clear. But wait! There’s even more!
As bad as a high-cost MER sounds, it actually can get worse yet! Mutual funds have more costs beyond the MER! Costs also include slippage during buying and selling, and direct transaction costs like commissions which are fully passed on to the investor. For ETF buyers, those costs do not have that direct impact.
Put simply, slippage is the difference between the bid and ask price. The details and full discussion would fill a book that is considerably beyond our purpose. So suffice it to say, ETFs are a cost-effective alternative that mutual fund investors should seriously consider.
Low costs can double investment returns
Help any friend, parent, or grandparent by telling them about low-cost ETFs. Any that are mutual fund investors can make the switch. Doing that could double the returns of many mutual fund investors. Mutual fund investors should also consider the service of their financial advisor. Why did they put the investor into high-cost mutual funds? Just who are they working for?
Advisors got very well paid for putting investors in mutual funds. And they get well paid each year for keeping investors in mutual funds. Each year, those costs all come from returns that could go into investor pockets. Those costs are all unrecoverable and a continuing unconscionable rip-off, in my view!
If you or anyone you care about holds mutual funds, tip them off. Do not hesitate to share how they can dramatically improve returns. And that can happen in an instant! Plan, take the action needed to move to ETFs. Do that and enjoy the advantages of low costs double returns, or better! Help them improve their potential for considerably better returns.
Be outraged but be careful
When seeking to enjoy low costs double returns, use caution. In fact, a mutual fund holder needs to have quality and objective advice. Don’t just run for the door. You must pay close attention to all costs associated with exiting any fund. In such situations, trailer fees are big cost offenders. Trailer fees are also called deferred sales charges (DSC). They are an otherwise obscure costs that can take a big bite of your money! Be sure to take care and put together an exit strategy that works to your advantage. Or at least one that minimizes your costs.
As ever more investors learn about the lower-cost ETF ride, then jump on it! The opportunities and advantages over mutual funds will slowly become more common knowledge. But your can help spread the word! Tell your family and friends to also check it out.
As investors get wise to the mutual fund game, more switch. Each year there are more redemptions. Most are switching the funds into ETFs. But there are billions still that have not. It speaks to the tremendous power of mutual fund marketing.
Generally speaking, most basic ETFs are financial vehicles like or similar to a publicly listed mutual fund but with very low costs.
Next, we will touch lightly on the range of other ETFs so you are aware of another large group of offerings. If they are ever suggested to you as an investment, you need an awareness of them. In contrast to the basic ETFs, the exotic and advanced ETFs are not for beginners.
Mutual fund investors look at ETFs
Mutual fund investors look at ETFs. Any financial advisor that puts your capital into a mutual fund also makes your capital works for them! At your expense! Any mutual fund investor should look at ETFs for big savings.
Exchange traded funds beat mutual funds
Exchange traded funds or ETFs are a better choice than mutual funds. If your financial advisor puts you into mutual funds, that service and your account need to be reviewed. Your capital delivers a no-risk and constant return to the advisor and their firm! But what about the investor? They take all the risk and get the leftovers for their return.
Market movement up or down does not matter to the return advisors and their company gets. They are first in line, ahead of the investor who owns the capital! Still, they get their return, every year. No matter what the market does, each year they take a nice slice from investor accounts.
Moving mutual funds and ETFs
Anyone that uses mutual funds for their retirement savings needs to check their approach. If you are dealing with a company that offers only one type of investment, such as mutual funds, you need to go to another company. It could certainly be a change that pays you very well.
Switch a mutual fund for ETFs to double investor returns.
You can possibly do far better for yourself, at far lower costs. And yes you can get at least comparable or perhaps better performance. The big difference, very significant cost savings, compound in your favor.
Go to a company that offers alternatives including Exchange Traded Funds or ETFs. But be careful. If you are in effect being held captive by a mutual fund company, you need to carefully look at your alternatives.
Mutual fund companies can make moving very expensive. Get help from a qualified professional advisor. Quality professional financial planners are worth their weight in gold.
With a little effort and determination, you can dramatically improve your returns. Over time making that one change offers possibilities that significantly grow your net worth. Improving net returns can possibly change your retirement comfort for the better. Make the effort to find out.
Mutual funds, ETFs and indexes
You have multiple alternatives to mutual funds. ETFs are the easiest alternative to consider. If the company you deal with offers only mutual funds, they offer only high-cost products. While ETFs are similar to mutual funds there are important differences. Almost all of those differences favor you with lower costs as compared to mutual funds.
The biggest and most important differences between mutual funds and ETFs are the direct costs you pay. Mutual funds take more of your money and earnings. No matter how the sales rep tries to spin the story, mutual funds, at the end of the day, give you less.
Both mutual funds and ETFs hold stock positions in multiple companies. Most, but not all funds are holding from 70 to 3,000 different securities. While other discussions will explore investing in so many holdings, this lesson will not. This lesson will remain focused on a straightforward comparison between mutual funds and ETFs with both tracking the same index.
In another discussion, we will explore indexes in greater detail. For this discussion, we accept indexes as indicators of stock market performance. Like stocks, ETFs list on stock exchanges. That means they trade throughout the day like any other stock listed on the market. The price moves up and down based on supply and demand.
In contrast, mutual funds trade only at the end of the day. Their price gets set at the net asset value price (NAV). NAV is the simple mathematical total of all the prices of all holdings in the fund at the closing price of the shares, held in the fund, that day.
Mutual funds typically have management fees, sales loads, and investment minimums. ETF costs are a small fraction of those totals. As products of the digital age, ETFs structure works with markets as they exist today. The operating costs of ETFs are minimal.
Some investors double their bottom line returns when they switch a high-cost mutual fund for an ETF.
The innovative ETF
The first ETF was a Canadian creation in 1990 designed as a financial product taking full advantage of the low costs of digital markets and current business and market technology. From the first index tracker, the ETF market grew to span every market. Virtually all markets and components are now covered with thousands of ETF product offerings.
In contrast, in 1774 the first mutual fund emerged from the Netherlands. As products of their age that grew with trading developments, they largely stay mired in old thinking and saddled by an old administration. Their obsolete sales, distribution, and administrative structure puts them at a great cost disadvantage. Mutual fund holders cover those costs.
Mutual funds simply have an uncompetitive business model and structure. However, the industry vigorously resists transparently exposing this to consumers. So the costly financial differences remain obscure but continue coming directly from the pockets of investors.
It is well worth your while figuring out how to extract yourself from that very expensive and obsolete matrix. Investors considering ETFs as an alternative to mutual funds realize high costs take a large bite of their wealth. Do your homework on this to directly change your future wealth prospects for the better.
Key takeaways from lesson 4,
Low costs double returns
Choose low costs over low returns for greater profits for investors that manage costs well. Low costs can double returns for ETF investors over mutual fund returns!
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Key investing success lessons Lesson 1
Top 4 ways to find money to invest Lesson 2
Time to invest or time for an advisor Lesson 3
Low costs double returns as ETFs beat mutual funds Lesson 4
4 Successful investor traits Lesson 5
Small investors have advantages Lesson 6
Avoid 6 investing sins Lesson 7
Investment impatience destroys wealth Lesson 8
3 Yeses or no investment Lesson 9
Investing can be fun, interesting and slow Lesson 10
Warren Buffett explains gold Lesson 11
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