ETFs versus Mutual Funds

Instead of a side by side comparison, I'm just going to examine the criticisms I've heard of ETFs, and my response, since I fall on the side of ETFs.

Looking at ETFs, they have historically faced certain criticisms. Criticisms included:

1. Price not tracking Net Asset Value (NAV)
2. Bid/Offer Spreads
3. Lack of liquidity from low volume
4. Commissions charged for buying and selling
   

I personally think these criticisms are all bunk. The biggest issue for me would be the first, and the difference is usually only 1% or so. What debunks this one, is that the difference could be in your favor (buying at a discount, or selling at a premium).

The second is ridiculous to me, because I've never had trouble getting a limit order executed (and sometimes they get superior execution.) I have extensively used ETFs and never use market orders.

The third sounds big, but I don't buy or sell on a panic, so it's not important to me.

The fourth is easily overcome with a small enough commission relative to the size of the trade, and the usually smaller fees inside the ETF relative to the mutual fund.

In summary, ETFs make very good sense for most investors. The only way I'd recommend mutual funds, is if the investor is very conservative, and has a very small amount to invest (like less than $10,000.)

Have any questions? Feel free to ask!

Aaron Hall