Compare ETFs and Mutual Funds

Fidelity SECTOR ETFs

ETFs and mutual funds have important differences that matter to the wise investor. Not all mutual funds are poor choices, but because of costs and a failure to even keep pace with the overall market, many of them are not worthy of consideration. After reviewing the choices available to provide my grandchildren with investment growth, dividends (for reinvesting) and diversification, I selected ETF’s for their UTMA accounts. The ETFs I selected are: DGRO, DVY, FENY, FHLC, FTEC, FUTY and VYM. DGRO, DVY and VYM are dividend growth in nature. The others are Fidelity sector ETFs that I believe provide good investment value. Those sectors are energy, health care, technology and utilities.

Mutual funds are priced once a day based on the value of their holdings and everyone gets the same price, while markets set the price for ETFs throughout the day.

Many ETF’s have costs that are rational for long-term investment growth.

There are many reasons to like ETF’s over most mutual funds. Two key reasons I like ETFs are:

  • You can set a buy limit order for ETF’s to buy shares at a price you like. With mutual funds, you get the price set after the market closes based on the performance of the investments within the mutual fund.
  • The ongoing cost of many ETF’s (expense ratio) is generally far less than that of most mutual funds. The exception is passive index mutual funds like Fidelity® 500 Index Fund Investor Class (FUSEX.) FUSEX has an expense ratio of 0.09%. Any expense ratio less than 0.10% is reasonable for ETF’s and mutual funds.
Compare ETFs and Mutual Funds

Investopedia is a great place to learn more about ETF investing. The link to the post titled “5 Reasons Why ETFs Work For Young Investors” is included at the end of this post.