facebookETFs and mutual funds, is one better than the other? - Seedly

Advertisement

Anonymous

04 Feb 2021

βˆ™

General Investing

ETFs and mutual funds, is one better than the other?

Hi Peter, I am new to investing and wondering if you can do a quick explanation between an ETF and a mutual fund? And what are the advantages and disadvantages of both?

AMA The InvestQuest

Discussion (1)

What are your thoughts?

Learn how to style your text

For ETFs and Mutual Funds that invest in stocks/bonds, the similarity is that both are diversified investment vehicles.

Most often, the ETF's objective is simply to track an index. Whereas for many mutual funds (but not all), the objective is to outperformance the index. That's why ETFs are known as passive investment vehicles, while mutual funds are known as active investment vehicles.

In trying to outperform the index, the active mutual fund manager does research (such as security selection and tilts to certain sectors/geographies) and this often results in slightly higher running costs that an investor pays for, which can be considered a "disadvantage".

There are a few asset classes (such as non-US stocks & Corporate Bonds), where mutual funds have historically still managed to outperform ETFs, even on a net-of-fees basis.

In contrast, ETFs have generally been more successful at outperforming mutual funds for exposures in US stocks and Govt Bonds.

I have written some information on ETFs vs Mutual Funds previously, sharing the link below if it is helpful.

https://theinvestquest.com/when-to-use-active-m...

Write your thoughts

Advertisement