There are tens of thousands of investment choices that you can invest in today. Two of the most common are mutual funds and exchange traded funds (ETF’s). Each of them offers some great benefits to the average investor and both are extremely flexible. So which of them is a better choice for your portfolio? You will see the advantages and disadvantage of each as you read on.

Brief Overview of Each Investment:

Mutual Funds: A mutual fund is an open-ended fund that continually accepts new money for investment. Your money and all other investors is pooled together and the fund managers purchase appropriate investments based on their stated investment objectives. Most are actively managed and all orders are executed and priced only once daily at the close of market trading. Most funds are either no-load or they charge an up-front commission, but exchanges within a fund family usually are free.

Exchange Traded Funds: ETF’s are similar to mutual funds in many ways. Their main difference is that ETF’s trade like stocks all day long and that their internal investment structure is usually established to mirror a market or investment index. They are not actively managed which keeps their trading expenses very low. Because they are traded like a stock, most investors will have to pay trading commissions every time you buy or sell shares.

Direct Comparisons:

1. Investment Performance: Winner – Mutual Funds. After using both of these investment vehicles for several years, I found that if you select the best mutual funds in their category, they will generally beat the performance of an ETF over time.

2. Transaction Costs: Winner – No Load Mutual Funds. Notice that I used no-load funds here specifically. If you use high commissioned funds, the ETF’s might win. Most good fund networks use no-load funds that have no transaction fees for trades that are held for at least 90 days. ETF’s incur a brokerage cost for each trade, just like trading shares of a stock.

3. Annual Expense Charges: Winner – ETF’s. Exchange traded funds are usually very low-cost because they based on an index. They have very small trading costs and only buy and sell the portfolio if the index is re-balanced. Most mutual funds are actively managed and this creates higher expenses.

4. Management: Winner – Mutual Funds. Most ETF’s are not actively managed so their isn’t a lot of management involvement. Most of the top mutual funds are actively managed and a quality manager can really add value to your investment bottom line. Their experience and strategic trading can be the difference between an average return and a stellar investment.

Summary: Based on my own experience and a head to head comparison over the past several years, I believe that high quality, actively managed no-load mutual funds are the clear winner for long-term investment gains. If you are looking at any one specific fund or ETF, you might be able to make a case for each, but if you are looking at the entire universe of these investments, mutual funds are your best choice today.

To discover additional investment, financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.

About the Author:

Keith Maderer is a financial expert and has been a investment and tax adviser in the Western New York area for over 30 years. He is the owner of SENIOR Financial and Tax Associates and the founder of the Maderer Foundation, a private scholarship program.

Keith is also the author of “How To Get Your College Education For Less”. Available on Amazon.com – ISBN No: 978-1-4538-2053-7.

You can get your FREE Wealth Expansion Kit, or check out his blog by visiting http://www.sftaweb.com