1. Your Questions About Mutual Funds Vs Etf
David asks…
What is Exchange-Traded Funds (ETF)? What is differenc between
ETF & Mutual Fund. ETF Vs Mutual Fund?
Steve Winston answers:
ETFs are sold like stock through an exchange. There are currently two types--index funds and
closed end funds. They are both types of mutual funds.
Mutual funds meaning open end mutual funds specifically are sold directly by mutual fund
companies to investors. No load mutual funds are purchased directly from the companies. They
can also be purchased through stock brokers but stock brokers may charge to a fee to do so.
Front end load mutual funds are sold only through stock brokers. A commission is charged to
purchase them called a front end load. Those are referred to a A shares. There are also B
shares and C shares where the load is charged in a somewhat hidden manner.
Index funds are unmanaged mutual funds and generally have a low management fee of less
than 0.6% of assets. Some index funds are sold directly through fund companies just like open
end mutual funds. Others as I mentioned are sold like stocks. Index funds hold stocks that
mirror the holdings of stock market indexes such as the S&P 500 for example. They have during
the past 10 or so years become very popular with investors. There are now literally hundreds of
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2. them available. But then there are thousands of mutual funds.
Managed mutual funds generally have a higher management fee, sometimes much higher.
Open end mutual funds are always sold at net asset value after the market closes. ETFs are
sold at market prices which can very from the net asset value sometimes by a great deal. In
March of this year many were selling at 20% discounts and more to net assets
Steven asks…
Mutual funds vs ETF for ROTH IRA?
I am 31 and going to open a Roth IRA...
What makes the most sense? Opening an account with Fidelity and investing in mutual funds
like the Contrafund or investing in exchange traded funds like SPY or QQQQ? I will be maxing
out my contribution each year. Please tell me the reasoning behind your answers
Steve Winston answers:
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3. Given the volatility in the markets I would go the ETF routes. My reasoning is the ETF merely
replicates an index while the Mutual Fund performance might be dependent on active
management (ie portfolio manager picking stocks).
But per your initial question = Contra has been a great fund and it wouldn't be a bad choice at
this point. I would also diversify into small caps and int'l/emerging market equity.
Lizzie asks…
Difference between ETF vs mutual funds?
what is the difference between etf's and mutual funds?
Steve Winston answers:
Good question.
In many cases they are practically the same.
ETFs trade just like a stock and I believe they are easier to trade because most are listed on the
Amex so you can just pull up the ticker like a stock. Also, there's some ETFs that just track
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4. certain commodities so you can play something like gold without getting involved in the futures
market. There's no mutual fund for that.
But then there's GDX which is the ETF for the top gold miners which would be identical to a
mutual fund.
Another difference is sometimes mutual funds are managed (load or no-load) whereas ETFs are
not (no fees ever).
ETFs are newer and offer more flexibilities into the market at greater ease but in many cases
the two are the same. I hope that explains it pretty clear.
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