Save money with ETF investing

  • ETFs are one of the most efficient investment products available to any investor. They have been around since 1993 and their popularity is growing exponentially. They’ve gone from being worth $66 billion in 2000 to $1.7 trillion in 2013. Mutual funds have gone from $7 trillion to $15 trillion during the same period, however, despite having more assets, if we compare the rate of growth for both funds, there is no doubt that the popularity of ETFs is beating mutual funds.

    ETF investing is growing because they offer the same level of diversification as a mutual fund but with far lower management fees. This is possible because an ETF is like an investment portfolio composed by several securities. An ETF attempts to track and replicate the performance of general market indexes such as the S&P 500 Index or the Nasdaq 100 Index.

    The administrative expenses associated with managing an ETF are also far lower than the ones associated with mutual funds. Since an ETF replicates the composition of a market index without attempting to beat the performance of the index (a passive approach), it doesn’t need a portfolio manager or a pool of analysts to select securities within the index. This is in contrast to a mutual fund which needs a portfolio manager and a group of analysts in order to try and build a portfolio that will beat the performance of the index (active approach). This is the reason why mutual funds are more expensive than ETFs.

    Any investor can save money by choosing an ETF.

    Learn how to lower fees and build more wealth over time
  • Regardless of how the market moves, you can start growing your portfolio faster. How much faster? Let’s put some numbers together and compare them.

    Your Initial Investment: $100,000
    Time Horizon: 20 Years
    Market Expected Return: 8% Annual On Average

    ETF Annual Fee: 0.20% (Lower Fees) Mutual Fund Annual Fee: 1.50% (Higher Fees)

    From an initial investment of $100,000 over 20 years, you can save $103,294 in management fees investing in ETFs instead of Mutual Funds.

    Even if some mutual funds beat the market from time to time, there is no mutual fund that consistently beats the market 20 years in a row.

    Comparative Portfolio Growth over 20 years (ETF vs Mutual Fund)

    Comparative Portfolio Growth over 20 years (ETF vs Mutual Fund)
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