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Are ETFs going to replace Mutual Funds

 In recent weeks my circumstances have changed with my retirement account and the bulk of my retirement savings is in a self-directed rollover IRA. I am able now to look and invest more broadly. This has caused me to be more and more interested in mutual fund alternatives like ETFs. 

ETFs are Exchange-Traded Funds which are a newer investment vehicle that are traded on the open market during the day with most mainstream brokerages and you're able to know the going price during the day instead of waiting for the close of market to have the mutual funds be priced. Also, whereas traditional mutual funds often have a fee in order to get in, many of the ETFs have no load and also very low expenses. 

Impact to the Market

I've followed Consuelo Mack WealthTrack for some time. This week's guest is a longtime expert in the industry and while he previously has favored mutual funds, in particular index funds, he now believes that their days are numbered. 

Indeed, Morningstar reports that mutual fund flows fell in 2020. So, it is reasonable to assume this trend will continue. Cathie Wood who runs the ARKK and many other ETFs is on record as saying she is very happy with the ETF wrapper.

Flows' Impact

Given the distinctions I've outlined above, there's certainly some impact that is worth considering when it comes to flows. Flows are the movement in or out of an investment. So, in some cases, when the flows are large, in particular flows that are in the middle of the day it can be more challenging to adjust. These kinds of impacts are often cited around events like the 2010 Flash Crash.

However, these kinds of issues, according to WealthTrack's guest this week are less of a risk today. Personally, it makes sense to me that more participants in these markets with apps like Robinhood and Webull, despite the challenging public opinion, are good for overall markets. It can allow more participants and ETFs over mutual funds seem to also fit that narrative. More ability to invest cheaply, avoiding fund minimums seems like a win for the individual.


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