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ETFs vs mutual funds: Which is the best choice during a recession?
The era of the 401(k) plan brought about a high interest in easy investing. Plan participants eagerly chose from a limited selection of mutual funds, typically rated low medium and high risk. This was everyone’s dream for contributing to their own retirement on a scale of their choice. What wasn’t cleared defined was that the costs associated with these selections were high and eroded the gains the participants hoped to seek. The 2008 plummet displayed a hopeless situation for those participants near to retirement. Many lost over fifty percent of their investments. Clearly a different plan had to be created and ETFs (Exchange Traded Funds) have entered the platform.
ETFs vs mutual funds are a next step decision toward saving for retirement. ETFs are sort of a cross between shares of common stock and a mutual fund. They are listed on recognized stock exchange and can be traded to the total asset value of the funds hold.
ETFs are known for their lower costs, inherent risk management properties and transparency. ETFs maintain value over the longer term. While more than two thirds of mutual funds fail to beat their five year benchmarks. The downside on ETFs is that the participant must have market knowledge. While the 401(k) mutual fund was an easier solution, it proved to be a costly one.
ETFs will require that participants use an experienced market management team for their selections. The costs are openly disclosed with no hidden unstated trading costs. In the long run the cost is less than mutual funds and the participant gains are higher. As always, the investors must make sure that they select the right professional financial advisor and read all of the paperwork.
Some of the newer technologies that are branching out and taking root in our world economy are listed as ETFs. This is good news for investors as we view new companies involved in solar, wind and green technologies. The private sector is seeing the technology of renewable energy products reduced and become a closer purchase of reality. Additional tax free incentives are an incentive to buy and therefore an excellent choice for investment. President Obama has vowed to encourage alternative energies as a direction for the country, so the incentive is even greater for investors to see good returns.
There are an abundance of safe ETFs, including precious metals. Gold bars usually require a higher dollar investment, but there is a selection of precious metals to choose from. Working with an investment counselor to ensure the stability of the company for longer term gains is best.
In the overall picture, ETFs vs mutual funds is somewhat of a no brainer. The fall of the 401(k) situation has created a requirement for smart investing that will maintain a balance of returns. The downside is that it won’t be the easy-and-pick choices of the 401(k) and will require working with a good financial consulting company. There is a cost for the homework and diligence that they must do, but, there is a greater cost for losing the investment if you don’t.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Mutual Funds Investment30 Mar 2010|