Should You Switch to an ETF From a Traditional Index Fund?
Costs and tax considerations are key factors when pondering such a decision.
Question: Although I've long held index funds in my portfolio, lately I've been wondering whether I'd be better off in an exchange-traded fund with a lower expense ratio. I seem to hear about a new lower-cost ETF almost every day, and many firms are waiving commissions.
Answer: You're right--the advent of commission-free trades has removed what has heretofore been one of the chief drawbacks of investing in ETFs relative to traditional mutual funds, particularly for dollar-cost averagers. But that's not to say your decision about whether to invest in an ETF or index fund should begin and end with the cost analysis. As you evaluate whether you should give your traditional mutual fund the heave-ho, here are some of the key questions to consider.