ETFs vs. Mutual Funds: The Ultimate Guide
It’s no secret that actively managed funds have fallen out of fashion. Many big names have touted the benefits of financial instruments that track an index, and ETFs such as SPY and VTI have enjoyed huge asset inflows as a result. Legendary investor Warren Buffett is even on board, announcing that “a very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money.” (Buffett actually recommends index mutual funds over ETFs because they discourage trading, but there’s no question that the trend toward indexing is driving the growth of ETFs.) And while the asset management industry isn’t a zero-sum game, it’s clear that the growth of ETFs is occurring at the expense of the mutual fund industry.
ETFs vs. Mutual FundsThe love affair with ETFs is not just a passing fad. It’s true that the total assets in exchange traded funds are dwarfed by those in mutual funds. But ETFs were only introduced in 1993, and didn’t gain widespread acceptance until recent years. ETF assets in the U.S. now total more than $750 billion, and the industry has seen more than $200 billion in cash inflows over the last two years. It’s not inconceivable that within a few decades, total ETF assets will exceed total mutual fund assets.
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