Many investors think they can pick the next hot fund, but it's a lot harder than it looks. No manager's hot streak, however lengthy, is guaranteed to continue. As Bill Miller proved in 2006, when his fund lagged the market by 9%, good runs don't last forever.
ETFs are user-friendly
True, some investors take advantage of ETFs' easy trading to spin their portfolios. But that doesn't mean you have to. After all, you can enjoy a glass of wine with dinner without being an alcoholic. What's more, ETFs offer more user-friendly features than traditional mutual funds. If you want the whole market or just a slice, ETFs give you what you want, when you want it.
SPY-specific
You can buy SPDRs (AMEX: SPY ) for an investment of roughly $150. Instantly, you've got access to the returns of hundreds of large-cap stocks. Most mutual funds won't let you play unless you have thousands of dollars. What's more, SPDRs only charges you half the expenses of its Vanguard mutual fund competitor, the Vanguard 500 Index (VFINX). No wonder Jack Bogle doesn't like ETFs; they don't make enough in fees.
The longer you stay in a low-cost ETF, the more your portfolio will benefit from being spared high expenses. Especially for taxable accounts, ETFs blow the doors off traditional funds. A taxable event usually only occurs with an ETF when you sell. That's just not the case with a mutual fund, which can have taxable capital gains year after year.
Strange fees
In addition, you must beware extra fees when investing in mutual funds. For instance, Vanguard investors must pay an account maintenance fee of $10 per year for index fund accounts with balances below $10,000. In addition, you have to pony up a minimum of $3,000 just to get into its 500 Index Fund. Cheap? I think not.
ETFs: the go-to option
Fund investors' top two most important factors are performance and fees. In both areas, ETFs perform well, offering investors a variety of choices and easy-to-use features. ETFs have moved the mutual fund concept into the 21st century, and that's great news for investors.
You're not done with the Duel yet! Go back and read the other entries, then vote for the winner.
Fool contributor Zoe Van Schyndel lives in Miami and enjoys the sunshine and variety of the Magic City. She does not own any of the funds or securities mentioned in this article. The Motley Fool has a disclosure policy.
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