ETFs vs. mutual funds — it’s one of Wall Street’s biggest fights.
It’s true that many more mutual funds have the advantage of active management — thus a top investor like Peter Lynch or Michael Price can have a huge impact on returns. But such superstars are rare, preferring instead to operate hedge funds, where fees are much higher. More importantly, ETFs are starting to get into the actively managed world themselves.
That said, if you’re a 401k investor, you don’t really have a choice. It’s mutual funds or bust.
But if you trade through an IRA or another personal brokerage account, you do have a choice. And that’s where ETFs strut their own big advantage: low costs. More often than not, you can get the same kind of flavor (and return) in an ETF for much less in expense fees and other charges than you’d get in another mutual fund.
Here are a few examples of where investors would’ve made out better with a lower-cost ETF without sacrificing performance: