Your S&P 500 Index Fund Should Be A Mutual Fund, Not An ETF

With the advent of exchange traded funds, mutual funds have become the red headed stepchild of the investment marketplace. While still popular in workplace retirement plans like 401(k)s, many financial advisors and investment pros tend to prefer ETFs for their intraday tradeability and, generally speaking, lower expense ratios. But what if I told you that in many cases, maybe even in most cases, individuals looking to make an investment in an S&P 500 index fund (like the SPDR S&P 500 Trust ETF (SPY)) should be doing so in a mutual fund and NOT in an ETF?

 

Obviously, a mutual fund will not always be better than an ETF. How often you plan on trading and how much you plan on investing will be the primary factors in determining which product is better. Since both ETFs and mutual funds seek to benchmark the S&P 500, the offering with the lowest overall cost wins (again, unless you want to be a frequent trader where the ETF and its tradeability will win).

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