Mutual Funds Vs Exchange Traded Funds

Many, many misguided articles have been published about Mutual Fund fees and their performance lately.  Although, Mutual Funds do have fees and at times don’t perform as well as the Index Funds, what’s missed is that some Mutual Funds do beat the index even when including the fees, and, investors that are invested in Mutual Funds are usually investing through a Financial Advisor.  A straight comparison of fees and performance with an investor investing in Mutual Funds compared to an do it yourself investor investing in Index Funds is challenging because the value that the Financial Advisor brings to investing eclipses the performance of simply investing on your own into Index Funds without an advisor.  Because of the substantial value that a Financial Advisor adds to an investor invested in Mutual Funds compared to an investor investing on his or her own in Index Funds, the comparison of Mutual Funds to index funds is completely misguided.

As an example, take a client that starts with a $1,000.00 investment and decides to invest on his own  in an Exchange Traded Fund with a Management Fee of .02% per annum and compare that with the same client that decides to invest in a Mutual Fund (any mutual fund) with a Management Fee of 2% with the help of a Financial Advisor.  Then consider that the Exchange Traded Fund does 3% better than the Mutual Fund in the first year.  Clearly it seems that the investor investing on his/her own is doing much better.

However, then consider that on his/her own the investor hasn’t been able to put aside any additional funds for the last 10 years and continues this pattern; whereas with the Financial Advisor who creates a budget and contacts the client monthly to follow-up (for the first three months) to ensure that the budget is being followed, the client invests an additional $1000 every month.  Then compare the returns after 2 months and compare the cost of the advice and you’ll start to understand why people need to use a Financial Advisor.

Whether it’s to get a better race time, build more muscle or save more for retirement, virtually everyone achieves better results with a coach!

Yes, clearly, costs need to be reviewed and transparent, but don’t fall for the trap and think that you can save as much as you would without a coach as you would with a coach.

Remember 95% of North American’s are not saving enough for retirement.  Clearly having a Financial Advisor Using Mutual Funds to increase retirement savings is much more valuable than not having a Financial Advisor and simply investing in Index Funds on your own.


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