The Continuing Case for Mutual Funds

02/23/2012 7:15 am EST

Focus: ETFs

Janet Brown

President, FundX Investment Group

It doesn't always pay to jump on the new, hot trends. Sometimes tried and true is preferable to new and shiny, writes Janet Brown of NoLoad FundX.

Today with so much focus on exchange traded funds (ETFs), some wonder why we, or any investor, should continue to use no-load funds at all. If ETFs are so great, why bother to continue to use mutual funds? Here are a just a few reasons:

  • 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.
  • 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.
  • 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.
  • 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.
  • 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 no-load 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.

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