We’ve been a big fan of the exchange-traded fund as an investment vehicle for quite some time.  The instant diversification, tax efficiency, liquidity, and low transactions costs make them ideal for many investors and traders alike.  Mutual funds are still better in certain situations, such as when you have frequent, small contributions–as in the cases of 401k accounts and some variable annuity sub-accounts, for example.  In most such cases, investors are not charged brokerage commissions on new additions, whereas they would with ETFs.  Along the same lines, reinvestment of dividends and capital gains are generally done automatically and at no cost with mutual funds.  With ETFs, it is entirely up to the broker, and many do not offer “DRIP” programs.  

Still, on balance, we lean toward ETFs as the preferred vehicle on most occasions. Read the rest of this entry »