04-10-2014, 08:56 PM
(04-10-2014, 08:45 PM)earthtodan Wrote: I think it has a lot to do with consumer ignorance, and people going with what they know. I've dealt with this question because my mom is retired, and had to make some decisions about what to do with her 401k. She is fairly financially illiterate and she has it drilled into her head that any individual strategy has a 99% chance of trailing the market. She wants to buy index mutual funds, per the advice of John Bogle.
Having come across ETFs in her research, she asked me what the difference was between an ETF and an index mutual fund because she couldn't wrap her head around it. She is suspicious of ETFs because she read that they are an "exotic" financial instrument, and financial instruments may have had a role in the financial crisis, although she could never explain how. She also came across some scary sounding accusations like "tracking error vs net asset value" and "ETFs are used as a trading vehicle." I explained it as best I could, including with expense ratios, how ETFs are the definitive way to track any market index, are dirt cheap, and there's nothing to be afraid of. I also explained that on average, mutual funds trail the market by, coincidentally, the average expense ratio of mutual funds in general. She thanked me for my explanation but decided to steer clear of ETFs, because John Bogle says to buy "index mutual funds."
Personally I don't know how ETFs haven't put mutual funds out of business, but having seen the slice of the investing market constituted by my parents, it's not so hard to believe.
GREAT post. Yes I agree 100%, I cannot see how mutual funds have any advantage other than say, if you wanted a dollar cost average with a fund to track xyz and en etf was not available commission free to allow you to do the same.
For example, if you wanted to buy the entire Dow Jones Index there are no commission free ETF's currently available for this. DIA is the most popular ETF, but you'd have to pay a commission every time to dollar cost average. Maybe an alternative would be a mutual fund that did the same. I've never looked, just throwing out an example.
It seems there is a lot of bad information on the internet about this.The more I searched the more I found all of the mutual fund junky's proclaiming that mutual funds are better. I just don't get it. Glad I'm not insane
