Today with so much focus on exchange traded funds (ETFs), some wonder why we, or any investor, should continue to use noload funds at all. Our answer is the same as it was forty years ago: because markets change, and funds – whether they are structured as mutual funds or ETFs – make it easy to respond to market changes.
If ETFs are so great, why do we bother to continue using mutual funds? Here are a just a few reasons:
1. Access to top money managers: Funds allow us to have our money managed by some of best institutional managers and research teams in the world. Many of these managers normally require very high investment minimums.
2. Efficient: With funds, we can effectively buy or sell a diversified basket of securities that can focus on almost any market sector, geographic region and/or company size. We have access to almost any proven investment strategy.
3. Regulated: Mutual funds are highly regulated and transparent. There are tight restrictions on risks, disclosure requirements, and many built-in protections for investors. Fees are clearly disclosed and performance is independently audited. Because returns are net of expenses, we can make true, apples-to-apples comparisons between funds.
4. Reasonable costs. When you consider the cost of trading a diversified portfolio, the quality of the fund’s research teams and professional management, and the convenience of hiring or firing a manager in one transaction,
5. Easy-to-trade: Open-end mutual funds are priced once a day at their net asset value (NAV), so all investors who buy on the same day get the same price. Most brokers now make a large number of funds available without transaction fees (NTF) so investors can often buy and sell funds without any additional broker costs.
Whether you use noload funds or ETFs or a combination of both, we believe the most important thing is to invest in the top performers and change your portfolio as markets change.