Mutual Funds or ETFs, Which Is Better?
This is a great question. Mutual funds are considered an active money management approach, meaning a portfolio manager is buying and selling investments inside of your portfolio. Exchange Traded Funds (ETFs) are considered a passive money management approach, where you own the index, such as the S&P 500. Mutual Funds have higher fees compared to ETFs, since ETFs are not actively managed.
In 2008, Warren Buffet made a bet for charity where he set up $1 million of his own money and deposited this amount into a Vanguard S&P 500 index fund. He then challenged his Protégé partners (who are considered some of the best managers in the world) to put their own $1 million into a set of hedge funds of their own choice. The bet was to let the money grow for 10 years and see who would have more at the end.
Warren Buffett made this bet in 2008 to demonstrate how large fees can hurt investment returns. A recent article discusses their development over these past seven years, and so far, Warren Buffet’s approach of a simple unmanaged index fund is doing considerably better than his partners hedge funds. You have to ask yourself the question, is simple investing more effective in the long-run? To read more on this article, click here.
I bring this information to your attention because it is a great illustration of how people have a tendency to overcomplicate their financial decisions and I believe that financial success comes from keeping things simple. It is important you understand the fees you are paying in your portfolio. If you have mutual funds in your portfolio, I encourage you to visit our website www.cornerstoneretirement.com and go to reports and download our “8 Things You May Not Know About Mutual Funds (that can hurt you!)” report.