Zero Fee Trades Likely Means Lower Fee ETFs - Part 2

Now that its clear investors understand how fees affect their returns and the financial industry as a whole is responding by lowering trading commissions to zero and cutting management fees on funds, its just a matter of time until we see ‘indexed’ funds begin to offer zero or near zero, as in 0.01% expense ratio, fee funds.

Why? Simple because they have to stay competitive if they want to stay in business.

For years the biggest argument for one someone would buy an index fund is because it would be so cumbersome and costly to go out and buy a few shares of all the different stocks that make up a specific index. For example, if an investor wanted to mimic the Dow Jones Industrial Average, they would need to go out and buy one share of each of the 30 companies that currently make up the index.

In the past, that would be 30 different stocks in someone’s personal portfolio, which honestly isn’t that much higher than what the average retail investor owns, typically somewhere between 15 and 20. However, that would also mean the investor would have paid a trading commission 30 different times in order to set up that portfolio (1 trading commission for each different company they bought a share or multiple shares of). If the average investor was paying $4.95 per trade, that’s $148.50 in trading commissions just so they could mimic the Dow Jones Industrial Average without having to pay a mutual fund or ETFs fees every year. Continue reading "Zero Fee Trades Likely Means Lower Fee ETFs - Part 2"

3 Reasons ETFs Are Better Than Mutual Funds

Matt Thalman - INO.com Contributor - ETFs


For good and bad, Wall Street is constantly finding new ways for investors to attempt to grow their money. But, with all these products available for investors to choose from and a massive amount of information being presented to the average investor, it is easy to understand why so many investors still ignore ETFs and stick with mutual funds.

In most cases the average investor does not have a choice between a mutual fund and ETFs when it comes to their 401(K) plans through their employer. But for those investors who decide they want to put more money to work than just their 401(K) contributions, plowing more money into mutual funds is a bad idea for three reasons: truly knowing what your buying, performance, and cost.

Knowing What You Actually Own

Walk into any retail store in the US and pick up a any product; find the tag if it's a piece of clothing, the label if it's a drug or grocery item, or even the new Christmas toy you purchased, and you can find out exactly what was used to make that product. Depending on what the product is, there are different laws that have been put in place to protect the consumer which require the manufacturer to inform the customer of exactly what they are getting at all times.

Flip to the world of finance, unfortunately knowing what you are buying at all times is not always the case. While mutual funds are required to disclose their holdings to the public, these disclosures don't typically happen more than on a quarterly or semiannual basis. So what that means is that although you think you have purchased a large-cap growth mutual fund and that the manager must have at least 90% of the fund's assets in large-cap growth stocks, you essentially have no way of finding out if that's really were your money is invested. All the mutual fund manager needs to do is sell whatever doesn't meet the large-cap growth requirement the day before the fund's disclosure statement is put together and to investors it looks like the manager is doing exactly what he is supposed to be doing.

So why would a mutual fund manager not keep the funds in exactly what the fund's prospectus says they will do? Continue reading "3 Reasons ETFs Are Better Than Mutual Funds"