It’s no surprise to regular readers of this blog but I have a strong positive opinion about ETF’s and a strong negative one about mutual funds. And yes, I did write about why ETF’s are superior to mutual funds. Some would argue and some points are a bit tougher to debate but in general, I do not see how owning mutual funds and paying excessive fees for decades can be a good thing, I just don’t.
Will it really happen???
Having said that, I do know that mutual funds will resist their extinction. How??? Because they have an army of salesmen that want to keep them alive. You know those financial reps who get a portion of your annual fees? When you have a decent size book, those fees add up very quickly. Make your clients pay 1% more but get .50% of that more in commission? It’s a good deal to many.
Since most of the population does not have enough knowledge to challenge their financial planners or to manage their portfolio themselves, they generally do not even hear about the possible option.
Not all ETF’s are good, as I had written about when discussing things to look for in an ETF, but I’d say it’s not even close in most cases. And it looks like the money flows are now starting to reflect this. Take a look at the net flows into ETF’s and mutual funds. Three straight down months for mutual funds, that is quite impressive.
Any thoughts for you? I know that personally, I find this very encouraging. The other good sign is to have mutual fund companies starting to launch ETF’s. They are finally admitting that mutual funds with excessive fees are not the future and that they cannot build their business solely on mutual funds.