Investopedia defines ETF (Exchange Traded Fund) as a marketable security that tracks an index, a commodity, bonds or a basket of assets like an index fund. Unlike mutual funds (which ETFs are replacing at an alarming rate), ETFs trade like common stocks on exchanges.
Braeburn Wealth Management uses ETFs to reduce client costs, provide liquidity, and reduce taxes. The average mutual fund expense ratio is 0.5% to 2%, according to Investopedia. Compare that to ETFs’ expense ratios of 0.03% to 0.25%, and the savings from using ETFs can be upwards of 90%. Click here for Information about Braeburn Wealth Management's Portfolio Management
Let’s say you own a popular mutual fund like the Growth Fund of America, symbol AGTHX. According to www.morningstar.com, (a free site), this fund has an expense ratio of 0.66%, and is categorized as a Large Growth Fund, which means it invests in large growth stocks. Entering the symbol at Morningstar and clicking on “portfolio” shows that the fund holds large and medium sized stocks.
Next, go to www.ishares.com, a very resourceful site for ETF information, and click on “find a fund” and “equity” (equity = stock). We are trying to find an ETF in the same category of our before mentioned mutual fund, Large Growth. Clicking on each ETF we can see various information points, including performance, expense ratios and holdings. The “Fact Sheet” link is a great way to get a quick overview of any particular ETF.
We soon find that I Shares S&P 500 Growth, symbol IVW, is a comparable ETF to the Growth Fund of America (AGTHX). Its expense ratio is 0.2%, less than a third of our mutual fund’s expense ratio. We have now identified an ETF to replace our mutual fund while reducing our costs by 69%!
In Lesson 2, we will show you how to compare performance of mutual funds and ETFs.
If you have questions or concerns about your investments, contact us at 231-720-0743 or at info@braeburnwealth.com.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
Braeburn Wealth Management, LLC An SEC Registered Investment Advisor.
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