ETFs or Mutual Funds?

A Money Magazine reader recently posed the question – ” I don’t understand why ETFs are better than mutual funds.”

In the article The best (and cheapest) funds around, Money’s undercover financial planner compares and contrasts index mutual funds and ETFs. The Vanguard Total Stock Market ETF (VTI) is matched up against Vanguard’s comparable mutual fund to illustrate the differences.

In highlighting the differences between mutual funds and ETFs, the mysterious financial planner gets most points right.

However, they miss some important negatives aspects of mutual funds including tax inefficiency, the secret nature of mutual fund holdings and the fact that investors are forced to trade with the mutual fund management company at a price that is only revealed after the fact.

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