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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Mutual funds vs exchange traded funds

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: I have Vanguard funds but I am thinking about switching to EFTs to save money and reduce taxes.

A: Vanguard is a great mutual fund company but their exchange traded funds (EFTs) are losing steam in comparison to the products from other companies. So if you are going to stick with funds, Vanguard is a great choice but if you switch to EFTs then use a more popular choice like Barclay's "Ishares". As for saving money in management fees, true, but the amounts are small amounts for most people. The savings would be about $10 per year for every $1000 you have invested. (Keep in mind that their is some cost to switching from mutual funds to EFTs. This might be about $50 for a typical account). As for taxes, yes, as long as you are a long term "buy and hold" investor who can benefit from long term capital gains rate. The more important issue is to ensure that you have a properly mixed portfolio to minimize risk according to your specific objectives. As always, start with a personal investment policy statement and then build your investment portfolio by making choices that support your written policy. Following this strategy will mean more to your results than the decision of whether to use mutual funds or exchange traded funds.


More resources: editorial: Thoughts on EFTs and Hedge Funds