Why I Will NEVER Buy Mutual Funds!

I today's video we are looking why I will never buy Mutual Funds! I hope you enjoy the video. Follow me on IG: https://www.instagram.com/investingwithcarter/

Why people use mutual funds
The primary benefit of mutual funds lies in the fact that they offer instant exposure to a wide array of securities. Rather than building out a portfolio with numerous positions, investors can simply buy shares of a mutual fund, which represent a shared interest in the fund’s underlying holdings.

Over the last 5 years, 92.9% of small-cap professional money managers have underperformed the S&P SmallCap 600

One of the worst aspects about mutual funds are the fees that they charge. Not only are the average expense ratios for mutual funds significantly higher than for ETFs, mutual funds include an array of not-so-transparent costs that can quickly add up. Let’s go over a few of these now.

Most actively managed mutual funds are sold with a load. This is an upfront cost that is paid to the broker for their effort in selling you a specific fund. Loads for mutual funds generally range from 1-2%, which is substantial, especially when you consider the poor performance we just discussed.

Expense Ratios
Aside from the fees noted above, mutual funds also charge an expense ratio, which is calculated as a percentage of your total investment. ETFs charge an expense ratio as well, but as you’ll see, the expense ratios for ETFs are substantially lower than that of mutual funds.

According to the Investment Company Institute, the average expense ratio of an actively managed equity mutual fund during 2017 was 0.78%. For ETFs, that figure stood at 0.18% … less than a fourth.

In terms of overall value, the portfolio that incurred the higher fees will be 21.9% lower after 30 years.

Many investors don’t realize this, but ETFs also provide tax advantages that mutual funds cannot. This stems from both the legal structure of each entity, as well as the investment style.
With actively managed mutual funds, portfolio managers are regularly making changes to the fund’s holdings. These changes result in taxable events for the investors. In some cases, mutual fund shareholders can experience taxable events even when the mutual fund doesn’t have any gains … how’s that for a nice slap in the face

Final Thoughts
By now the benefits of ETFs over mutual funds should be clear. No matter how you look at it, whether from a performance, cost, tax, liquidity or transparency perspective, ETFs provide benefits that mutual funds simply can’t match.
What ETFs to Invest in:


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