ETFs vs Mutual Funds (Part 3 of 3)

by Evan on December 18, 2009

Let me start by saying that I apologize for not finishing this topic sooner. 

One of the other significant differences between ETFs and mutual funds is ease of access and transparency.  ETFs can be traded on any platform, meaning that no matter what broker or investment firm you use, you can purchase ETFs.  On the other hand, mutual funds can usually be purchased, at no cost, at the issuing mutual fund company’s brokerage unit or through select relationships with other brokers.  Thus, it is often not possible to transfer mutual funds from one broker to another, at least not without incurring an additional cost to do so. 

Transparency deals with the ease of  timing purchases and sales of ETFs vs mutual funds.  Mutual funds can only be purchased or sold once or twice per day, at pre-specified time intervals that the issuing company determines.   The investor has no control over the timing of the sales or purchases when dealing with mutual funds.  ETFs can be sold or bought during regular market hours, and in some cases, have a market even pre and post-market hours.  The ability to liquidate a holding is incredibly important, and thus, ETFs provide more transparency of understanding the purchase/sale process. 

As one can see, ETFs provide a lot that mutual funds do, but often without the additional lack of transparency, higher transaction costs, and still provide, for the most part, better tax efficiency.  The Ethical Advisor, LLC uses ETFs almost exclusively in non-retirement accounts to provide all of these benefits to the firm’s clients.