Financial Wellness

5 Crucial “Money Facts” that Could Potentially Increase Your Return

February 5, 2017
ETFs vs MF | Common Financial Sense

5 Crucial “Money Facts” For Zeroing In On The Cost Saving Ideas That Could Potentially Increase Your Returns….

….And Ditching The Time Wasting and Expensive Money Wasting Products Before Your Next Statement Arrives….

Are You Using Mutual Funds?

It’s been my experience that investors don’t want to give themselves a raise and lower their costs.  Why?  Well here are the 5 Crucial Money Facts to help explain:

Money Fact #1: ETFs Have Liquidity & Mutual Funds Don’t

  • ETFs (Exchange Traded Funds) trade intraday, they are “exchange traded”, just like stocks. You can buy or sell throughout the day when the market is open.

  • Mutual Funds do not trade during the day and the buy or sell of shares only happens once per day, at the end of the trading day, after the markets close.

Money Fact #2: Transparency

  • ETFs disclose their full portfolios, companies that represent the holdings in an ETF, on public, free websites every single day of the year. Investors know what they are invested in and where the money is allocated.

  • Mutual Funds only disclose their holdings quarterly – and then only with a 30-day lag. In between reporting periods, investors have no idea if the mutual fund is invested.

Money Facts #3: Tax Efficiency

Quick Tip:  If a mutual fund or ETF holds securities that have gone up in value and then sells them for any reason, they can create a capital gain and by law they must pay them out to shareholders at the end of each year.

  • ETFs tend to be more tax efficient than mutual funds because of how they interact. The mechanics of how ETF shares are created and redeemed is the true answer.  (Let me know in the comments below if you’re interested in learning more on the mechanics of ETF shares)

  • When mutual fund investors want their money back, the mutual fund sells securities to raise cash to meet that redemption. This causes a reaction to the entire portfolio and effects all of the shareholders, hence more capital gains.

 

Money Fact #4:  ETFs Typically Have Lower Expenses

  • ETFs generally offer lower expenses than mutual funds

  • ETFs have little to no trading costs, tend to require less marketing and often fewer distribution costs than mutual funds

  • Index mutual funds are a close second, but generally ETFs are cheaper

 

Money Fact #5: Fees

  • Most investors know how to check the mutual funds expense Ratio….but that’s not the real bottom line.

  • Fees can come in a variety of forms:

  1. Administrative fees (the cost of running the fund)

  2. Management fees (the cost for managing the fund’s assets)

  3. 12b-1 fees (marketing)

  4. Loads (Front End/Back End)

  5. Transaction expenses (within the fund)

Unfortunately, many investors don’t realize that they may be paying too much in fees, especially if they are working with a broker who does not have a fiduciary duty to keep the clients best interest first.

Until Next Time,

Scott Krase, Wealth Manager, Professional Speaker 

Have questions? Get in touch at info@commonfinancialsense.com

 

 

#financialadvisor

Scott Krase